Being a leading American marketer of fine accessories and gifts,
) boasts of a proven strategy of investing in stores to enhance
sales productivity through product innovation, compelling pricing
strategy, new merchandise assortments and a cost-effective global
sourcing model, which should drive comparable-store sales and
operating margins in the long term.
Management remains confident of sustaining double-digit growth
in both the top and bottom line in fiscal 2013. The company's
long-term growth drivers include expansion of its global
distribution model and entry into under-penetrated markets. The
company lays more emphasis on globalization and accelerated
international distribution growth.
After North America and Asia, Coach also extended its global
footprint in Europe. It is also investing in rapidly emerging
markets, such as Vietnam, Indonesia, Brazil, Venezuela, Colombia,
Panama, Chile, Peru and Kuwait to bolster its popularity.
Management achieved more than $300 million in sales in China
during fiscal 2012, and expects to achieve at least $400 million in
sales in fiscal 2013. As a part of its strategy to directly control
certain Asian markets, Coach is now directly operating domestic
retail businesses in Singapore and Taiwan. The company is under
discussion to acquire Malaysian domestic business and Korean retail
business in the first quarter of 2013.
Coach maintains a healthy balance sheet with significant cash
balance and negligible debt load. Also, the company has been
proactively managing its cash flows by making prudent capital
investments and enhancing shareholder returns. The company's strong
liquidity positions it well to drive future growth.
The company ended the fourth quarter of 2012 with cash, cash
equivalents and short-term investments of $917.2 million and total
long-term debt of $23.4 million. Coach also notified that it bought
back approximately 2.5 million shares at a cost of $67.79 per
share, aggregating $169 million, and generated free cash flow of
$210 million during the quarter.
Amidst sluggish recovery in the economy, Coach posted
fourth-quarter 2012 earnings of 86 cents a share that beat the
Zacks Consensus Estimate by a penny, and increased 27% from 68
cents earned in the prior-year quarter, buoyed by healthy top-line
growth on the back of strong sales in China.
Coach, said that net sales for the quarter came in at $1,155.2
million, up 12% from the year-ago quarter, but below the Zacks
Consensus Estimate of $1,197 million.
The rise in sales was a positive indication for the luxury-goods
market, which was battered by the recent economic upheaval. Coach's
sustained focus on store sales productivity, online sales
initiatives, merchandising, marketing and strategic pricing have
helped it remain afloat in a difficult consumer environment. The
company remains optimistic about its unisex Legacy lifestyle
collection, dedicated Men's stores and international growth
opportunities to counter the soft consumer scenario in North
America and dull economic environment.
Coach sells products that are discretionary in nature. Its
customers remain sensitive to macroeconomic factors including
interest rate hikes, increase in fuel and energy costs, credit
availability, unemployment levels and high household debt levels,
which may negatively impact their discretionary spending, and in
turn, the company's growth and profitability. Therefore, we remain
concerned about erratic consumer behavior and sluggish recovery in
Fashion obsolescence remains the main concern for Coach's
business model, which requires sustained focus on product and
design innovation. The company's pioneer position may be
compromised by delays in its product launches.
Given the pros and cons, we prefer to have a long-term Neutral
recommendation on the stock with a price target of $63.00. However,
Coach, which competes with
Ralph Lauren Corporation
), holds a Zacks #4 Rank that translates into a short-term Sell
COACH INC (COH): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis
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