Chart a Course to Better Sales Growth Forecasts

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1 Chart a Course to Better Sales Growth Forecasts Ann Cuneaz, Education Program Manager, Ken Kavula, President, Mid-Michigan Chapter April 24,

2 Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by TM National Association of Investors Corporation ( BI ). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of TM. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the CEO of or the Director of Chapter Relations. This presentation may contain images of websites and products or services not endorsed by. The presenter is not endorsing or promoting the use of these websites, products or services. This session is being recorded for future use. 2 2

3 Agenda Complete Page One (Sales Growth) on the Stock Research Form Analyze and Evaluate Collected Data Make a Supportable Sales Growth Projection (YOUR Judgment) on the Stock Selection Guide 3 3

4 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 4 4

5 STEP 0 CURRENT INFORMATION 5 5

6 Collect Current Information 6 6

7 STEP 1 COLLECT SALES HISTORY; MAKE OBSERVATIONS 7 7

8 Data Collection 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year Other Quarter COH 16.6% 21.1% 8 8

9 Data Collection 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year Other Quarter COH 16.6% 21.1% Use the SSG to measure growth in other periods. 9 9

10 Data Collection 1.1 Historical Sales Growth Toolkit

11 Data Collection 1.1 Historical Sales Growth Online SSG 11 11

12 Data Collection 1.1 Historical Sales Growth 15.3% 9.6% 13.3% 12 12

13 Data Collection 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year Other Quarter COH 16.6% 15.3% 9.6% 13.3% 21.1% 13.5% 13 13

14 Data Collection 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year FY09 11 Quarter COH 16.6% 15.3% 9.6% 13.3% 21.1% 13.5% 13.5% 14 14

15 Data Collection 1.2 Historical Trends and Growth Strategy Other Trends (Life cycle growth observations; Recessionary growth observations) Growth Strategy (references: Annual Report/MD&A comments; Analysts evaluation of growth strategies (S&P Business Summary); Morningstar summary of bulls & bears analysis) 15 15

16 Life Cycle of A Successful Company Explosive Growth Mature Growth Best Investment Opportunity Stabilization Decline Speculation Startup Break Even Point 16 16

17 BUSINESS CYCLE 17 17

18 Data Collection 1.2 Historical Trends and Growth Strategy Most Recent 1 year 3 year 5 year 10 year FY09 11 Quarter COH 16.6% 15.3% 9.6% 13.3% 21.1% 13.5% 18 Company Life Cycle Sales Growth Rates Have Slowed Economic resilience Boom/Bust assumed Great Recession Flat sales growth in FY09 9.6% (3-yr) good bottom? 18

19 Data Collection 1.2 Historical Trends and Growth Strategy Other Trends (Life cycle growth observations; Recessionary growth observations) Sales growth is slowing as company matures. Sales growth was flat in FY09 (recession), followed by a more normal level of sales growth of 13.5% in FY09-FY

20 Data Collection 1.2 Historical Trends and Growth Strategy Growth Strategy (references: Annual Report/MD&A comments; Analysts evaluation of growth strategies (S&P Business Summary); Morningstar summary of bulls & bears analysis) 20 20

21 Annual Report 10K Management s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) we continue to focus on two key growth strategies: increased global distribution, with an emphasis on North America and China, and improved store sales productivity. Organic growth strategy Hint: search for growth, strategy or strategies in the document 21 21

22 S&P Report - Business Summary Corporate Overview Leading U.S Designer and marketer of high-quality accessories Market Profile 20% share of estimated $9.3B U.S. Market Japanese consumer is 40% of the global luxury handbag market; Coach holds 16% of Japanese market Primary Business Dynamics 87% of sales through direct-to-consumer channel Grow through increased market share and improved productivity COH Research: Page

23 Data Collection 1.2 Historical Trends and Growth Strategy Growth Strategy (references: Annual Report/MD&A comments; Analysts evaluation of growth strategies (S&P Business Summary); Morningstar summary of bulls & bears analysis) Organic Growth Strategy: Coach has grown mainly through new store expansion (including international, mainly Japan) and increasing same store sales

24 STEP 2 EVALUATE SALES HISTORY 24 24

25 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 25 25

26 Evaluate History 1.2 Historical Trends and Growth Strategy 1. Historical trend is stable and consistent around 13% except for recession in

27 Evaluate History 1.2 Historical Trends and Growth Strategy 1. Historical trend is stable and consistent around 13% except for recession in Sales growth is slowing from a 10 year historical rate of from 20% to <15% as company matures. 3. Growth strategy is organic and sustainable as company seeks more market share in Asia and Europe. 4. Recessionary Sales performance was flat in FY09 recovering to 13.5% since

28 Evaluate History 1.2 Historical Trends and Growth Strategy 28 28

29 Including commentary STEP 3 COLLECT ANALYSTS ESTIMATES 29 29

30 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 30 30

31 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% Source: (Analyst Estimates) Coach Research: Page

32 Online SSG Feature 2-Year Analyst Estimates for Sales 32 32

33 Online SSG Feature 2-Year Analyst Estimates for Sales 33 33

34 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% Source: Analyst consensus estimates provided by Morningstar for the Data Service 34 34

35 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 15% Source: Value Line, Inc. Page

36 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 12-15% Over the next five years, we model annual average revenue growth around 12%. Page 4 Source: Morningstar, Inc. - Valuation, Growth, and Profitability 36 36

37 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 12-15% Combined numeric results from: Yahoo Finance Value Line Morningstar Now let s add analysts comments 37 37

38 1.4 Comments about Future Sales Growth Bulls Say High-end positioning and brand loyalty allow COH to price higher than lesser brands, but where customers still see value Current successes in Japan and China have just begun Coach continues to drive demand through its innovation in styles, colors, and materials Coach has been underestimated because it has focused on efforts on the domestic market, new markets provide opportunity Source: Morningstar, Inc. - Bulls & Bears Page

39 1.4 Comments about Future Sales Growth Bears Say Customers are aspirational and more sensitive to the economy in general Growth strategy relies heavily on strong growth in China and Japan New product lines such as shoes and accessories could dilute core business Fashion changes and loyal customers may eventually shop elsewhere Coach will always trail European competitors, especially in Asia where COH has poor name recognition

40 40 40

41 Combine History and Analysts Estimates STEP 4 SET REASONABLE RANGE FOR SALES ESTIMATE 41 41

42 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 42 42

43 History + ACE* Short-term (less than 1 year) 1-2 Years Long-term (more than 3 years) *Analysts Consensus Estimates 43 43

44 History + ACE Set a Reasonable Range for Future Sales Growth Low High 44 44

45 STEP 5 SELECT FUTURE SALES GROWTH 45 45

46 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 46 46

47 It s Decision Time 1. Historical Data 2. Growth Strategy (MD&A from Annual Report) 3. Analysts Estimates 4. Analysts Commentary 47 47

48 Review History Commentary 1. Historical trend is stable and consistent around 13% except for recession in Sales growth is slowing from a 10 year historical rate of from 20% to <15% as company matures. 3. Growth strategy is organic and sustainable as company seeks more market share in Asia and Europe. 4. Recessionary Sales performance was flat in FY09 recovering to 13.5% since

49 Review Analysts Comments Bulls Say Higher prices due to market position and brand loyalty Japan and China growth Drive demands through its innovation New markets and products are growth opportunities Bears Say Customers are sensitive to the economy Relies heavily on Asia New product lines could dilute core business Fashion changes Coach trails European brands in name recognition 49 49

50 History + ACE Set a Reasonable Range for Future Sales Growth Low High 50 50

51 What Is Your Tolerance for Risk? Low High Conservative investors will select a growth rate from the lower end of the range. The right answer is the one that is right for you! 51 51

52 What Is Your Tolerance for Risk? Low High Sample Sales Growth Ranges Lower Risk 10% 11% Medium 12% 13% Higher Risk 14% 15% 52 52

53 1.5 YOUR Sales Growth Projection Research + Process = Supportable Growth Estimate 53 53

54 Practice Activity Complete Page 1 of the Stock Research Form and make a Sales Growth estimate for Costco (COST). Plan to spend no more than minutes on this activity. COST Research materials can be found in My Classes. FREE Trial version of the Online SSG

55 ADDING JUDGMENT SERIES CONTINUES Class 2, May 8 th Chart a Course to Better EPS Growth Forecasts Review Sales Growth page for Costco (practice) Complete page 2 of the Stock Research Form for Coach and project the future EPS growth rate Reminders: All class sessions are recorded and may be accessed until September 28, 2013 Class materials and recordings are available in My Classes under the Education Tab at

56 READ THINK ANALYZE 56 56

57 Questions or Comments?

EPS Growth Projection

EPS Growth Projection Ann Cuneaz Education Program Manager BetterInvesting August 28, 2012 The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell