Multinationals operating in Japan began the act of nursing their wounds caused by the earthquake and tsunami that ripped apart the northeastern part of the country. Following the tremor, most of the companies discontinued their organizational operations in Japan and began the process of evacuating their employees from the grief stricken areas. Coach Inc. (COH), the designer and marketer of fine accessories and gifts, closed about 20 Coach stores, after the catastrophe.
The company has about 171 stores in the country and generates approximately 20.0% of its sales from Japan. However, the company’s Tokyo operations were functioning at its normal pace with uninterrupted supply management. The company also marked that there has been no morphological costs apart from the governments’ statutory control on transport and power that had a minimal impact upon the business.
Being a leading American marketer of fine accessories and gifts, Coach boasts of a proven strategy of investing in stores to enhance store sales productivity through product innovation, compelling pricing strategy, new merchandise assortments, and a cost-effective global sourcing model, which are expected to drive comparable-store sales and operating margins in the long term.
The company’s long-term growth drivers include expansion of its global distribution model and venturing into under-penetrated markets. After North America and Asia, Coach now plans to extend its global footprint in Western Europe. It is also investing in rapidly growing emerging markets, such as China to increase its brand awareness.
Another company, The Walt Disney Company (DIS) has suspended its theme park and Tokyo DisneySea operations as a safety measure taken to protect its employees and their families. Japan’s Disneyland is an integral part of the Disney’s parks & resorts segment as it derives a healthy amount of profit in the form of royalty as per the licensing conformity between Disney and OLC group of Japan.
Thus, the amount of revenue loss is expected to be high and is likely to weigh upon the financial results of the company. It is evident that there is no measure to mitigate the suffering and loss caused to the human race, but it does incite a need to assess the impact of the temporary closures on the financials of the companies operating in Japan as the tremor of the Japanese waves will have a brunt on the life and business of many, whether in Japan or the U.S.
At present, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Coach holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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