),a leading American marketer of luxury handbags and other fashion
accessories, will report its Q1 fiscal 2014 on October 22. Its
North American results will be keenly tracked by analysts as the
company had reported disappointing results from the region in the
previous quarter. With a decline in consumer spending due to
the budget dispute in Washington as well as a change in
spending patterns, it is unlikely that Coach will perform any
better in this quarter. Moreover, North America has been a tough
market for the company in the recent past due to rising competition
from upcoming fashion companies such as Michael Kors, Kate Spade
and Tory Burch.
We believe that the company's North American results will remain
weak in the near term. Since these operations account for about
two-third of Coach's sales, the retailer's overall results will
also feel the negative impact. However, Coach's international and
men's business hold some upside for the company's results, and this
could be a highlight in its release.
It will be interesting to see Coach's progress on its brand
transformation strategy, as its success is the key for the company
to sustain its market share in the North American handbags and
accessories market. Coach's profitability could come in lower than
the prior year due to the weaker yen, and increased investments in
international markets and brand transformation strategy.
See our complete analysis for Coach
Recap Of Q4 2013 Results
Coach reported net sales growth of 6% annually in Q4 2013 on 6% and
7% growth in North American and international sales respectively.
Weak North American sales was the highlight of this quarter as
comparable stores sales fell by 1.7%. In addition, the weaker yen
posed a headwind as total sales rose by 9% in constant currency
Operating margin fell to 26% compared to 30.4% in Q4 2012, owing
to acquisitions of distributor businesses in Asia and recognition
of $53 million charge on extraordinary items.
Brand Transformation Strategy Could Take Some Time To Yield
Coach is undertaking a brand transformation strategy to position
itself as a global lifestyle brand anchored in accessories. It is
re-aligning its products, stores, marketing and executive
management team as part of this strategy. We believe the positive
results of this transformation will start to be seen from the
holiday quarter, and the overall transitioning will take a few
years to complete.
International Sales Will Continue To Grow At A Healthy
Growth in international sales represents one of the key long
term growth drivers for Coach. In Q4 2013, Coach's international
sales rose by 17% in constant currency, on the back of a solid 35%
rise in Chinese sales. Chinese results will continue to be the
focus this year as Coach estimates Chinese sales to grow to $530
million in fiscal 2014, as compared to $430 million in fiscal 2013.
Coach's expansion plans in China during the fiscal year include 30
new stores, which will enhance its total square footage by 25% in
the region.In addition, Coach's sales in the Asian markets of
Korea, Taiwan, Malaysia and Singapore continue to rise at a healthy
Coach aims to grow aggressively in Europe as it plans to open 70
wholesale and 10 retail stores across the region during the fiscal
year. Coach also intends to enhance its distributor-run business in
Latin America, other Asia-Pacific countries (Australia, Thailand
and Indonesia) and in the Middle East. As a result, we believe the
proportion of international sales in Coach's overall sales will
rise in the future. ((
Coach's CEO Discusses F4Q 2013 Results - Earnings
, Seeking Alpha, July 30, 2013))
The weaker yen continues to pose a headwind in this segment.
Japanese sales declined by 15% in Q4 fiscal 2013 in dollar terms,
even though they increased by 4% on constant currency basis. We
believe the weaker yen will continue to impact Coach's results in
the near term.
Men's Business Represents Another Growth Driver
The men's business, which grew by approximately 50% in fiscal
2013, continues to be a long term driver for the company. We
believe this business will continue to rise at a strong rate in the
future and help drive both its North American and Asian sales.
Our $59.5 price estimate for Coach's stock, represents 10%
premium to the current market price.
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