Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

Analysts at Piper Jaffray feel now is the time for Coach Inc (NYSE: COH)’s investors to move to the sidelines as the stock needs a “period of digestion.”

The firm’s Erinn Murphy downgraded Coach’s stock from Overweight to Neutral with a price target lowered from $ 48 to $ 43.

Investors need to give Coach time for it to integrate the Kate Spade brand, which it acquired earlier this year, Murphy commented in a note. In fact, the company said it will be changing its comp reporting structure as part of being a “house of brands” company. Accordingly, it will likely take some time for the stock to see it’s “drivers re-calibrate.”

Investors and the Street have gotten used to Coach’s reporting structure in which it would report NA global comp (including full price and outlet sales combined), the analyst said. The stock’s success as of late has been trading positively on these comp-store numbers as it served as the best proxy to gauge the health of the Coach brand.

In other words, the fashion icon and retailer’s results are likely to show a lower chance of comp and sales out performance moving forward as the P&L line will be more reliant on the Kate Spade EBIT synergies. Over the longer-term, the Kate Spade acquisition will likely generate synergies that will exceed management’s $ 50 million target.

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Image Credit: By Leitonmahillo (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Latest Ratings for COH

Date Firm Action From To
Oct 2017 PiperJaffray Downgrades Overweight Neutral
Oct 2017 Wolfe Research Downgrades Outperform Peer Perform
Sep 2017 Barclays Initiates Coverage On Equal-Weight

View More Analyst Ratings for COH
View the Latest Analyst Ratings

Posted-In: Erinn Murphy fashion Kate Spade Piper JaffrayAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

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The cloud could drive open source out of the enterprise

For a decade, there’s a question that just won’t go away: Is the cloud killing open source? It still strikes up some emotions.

Open source software has been the backbone of enterprise platforms for a long time—remember the LAMP stack of Linux, Apache, MySQL, and PHP/Perl? But consuming open source software via the cloud could change open source’s enterprise footprint.

‘Free’ open source is not cheaper

First of all, open source’s no-cost attribute means less in the cloud. Public cloud providers will charge you for the time you use their cloud to access open source software—or any software.

Thus, it doesn’t really matter if you AWS Linux, Red Hat Linux, or closed-source platforms from Microsoft, because they are all “free” yet cost the same in cloud time charges for access. The same is true with the databases; there’s not much different in your monthly cloud bill if you use open source databases versus closed source, or those that are native to a specific cloud such AWS Red Shift.

If there is not a dramatic cost advantage, most enterprises won’t care about the platforms that they use in the long run, and that takes away one of open source’s historic strengths.

Open source’s other strengths need strengthening

Of course, in some enterprises, the use of open source is a religion. I’ve had many clients that will use only open source solutions. One reason is belief that an open source community is the better locus for foundational technology: Not only is it not proprietary to a single company that could abuse that position, it gains from contributions of a wider set of talented people, stays more connected to the market’s actual needs (being free of a single entity’s commercial agenda), and can more quickly address any deficits (due to the wider community that can investigate its code).

Although I can see those advantages, at the end of the day, any technology has to succeed by its own intrinsic merits. Coming from a socially positive context is not enough merit; the technology itself needs to be best of breed to get and maintain broad usage, at any price. Now is the time for open source projects to double down on the functional advantages of their software, not rely so much on price and religiosity. 

It will be an interesting next few years for open source. Although open source zealots in enterprises will run open source platform analogs in the cloud, and not diverge from their open source path, I believe that the majority of enterprises will move toward closed source technologies when doing so becomes the path of least resistance, given that the costs are about the same. To fend off closed-source options, open source technologies will simply have to be better.

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The cloud partnership AWS and VMware announced Thursday makes Amazon’s public cloud even more attractive for enterprises by letting them take the popular virtualization platform with them.

The appropriately named VMware Cloud on AWS , announced at a press conference in San Francisco, will bring cloud-optimized versions of vSphere, VSAN and NSX software to the cloud platform. When users spin up a VMware environment on AWS, they’ll get a cluster running the entire Software-Defined Data Center stack in the public cloud.

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Ahead of the Apple Worldwide Developer Conference, Apple has revealed plans to introduce search ads and expand subscription support for apps in its App Store, while Google is testing its own subscription changes.
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