Coach Inc. is one of the most recognized brands in the luxury
goods industry. It is a leading marketer of fine handbags and
accessories for women and men. Coach was established in 1941 and
sold to Sara Lee for $30 million in 1985. Sara Lee Corporation
then sold 19.5% of the shares in an IPO in October 2000. Since
listing on the New York Stock Exchange, Coach Inc. (
) has grown to be the number one brand of premium handbags and
accessories in the U.S. market.
Coach's merchandise is sold through Coach stores, factory
outlets, department and specialty stores, duty-free locations in
airports and online. Coach Inc. has two business segments,
Direct-to-Consumer and Indirect. Over 85% of the company's sales
are generated by its Direct-to-Consumer segment, with the
majority of the sales coming from handbags and accessories.
Coach markets its products as "accessible luxury." Its pricing
strategy for a handbag ranges from $298 to $1,000, which means
that its product reaches a larger consumer demographic than other
high-priced competitors such as Louis Vuitton and Prada which
focus on the very wealthy. The strategy of targeting the higher
and upper middle income shoppers differentiates Coach from its
competitors and also helps to establish it as the poster child of
tapping into this global trend of consumers wanting to trade up
in the quality and style of what they buy.
said, "In business, I look for economic castles protected by
unbreachable moats." Coach Inc. has a narrow moat and a
competitive advantage. It has a strong brand presence in the
luxury market, not easily eroded by other competitors. New
competitors in the luxury brand industry would have to spend a
large amount of money and resources to build up competitive brand
awareness and image. Coach also has consumer loyalty as it has
been delivering high-quality products that are simple and
reliable, with a perceived value.
To further grow the business, Coach has outlined its strategy as:
1) Raising its brand awareness and market share in the
under-penetrated Asian market with China being the top targeted
2) Growing its women's business in the North American and
3) Increasing its men's business in North America and Asia
4) Maximizing e-commerce sales
Why is Coach a Screaming Buy?
Coach Inc. (
) is a great company to invest in for a multitude of reasons.
Coach has executed its strategy successfully over the past
decade. Its revenue has grown progressively every year at a
compounded growth rate of 21%. This is a mean feat considering
that it is in a highly competitive sector. It has also shown that
it is able to grow through strong or weak economies as evident by
the increase in sales in 2009. The ability to keep increasing
revenue shows the strength of its pricing strategy.
Coach has maintained high gross margin and net margins. A high
gross margin signals a market leader position and pricing power.
The gross margin has averaged 74% over the past 10 years while
the average net margin is 24%. In fact, Coach has the highest
margins as compared to its competitors.
Coach has no long-term debt on its balance sheet. Its financial
metrics of Return on Equity (ROE) and Return on Asset (ROA) are
impressive with ROE consistently above 35% and ROA above 25%.
Operating cash flow has been positive for every year for the past
decade. With the growing, free cash flow, Coach has been
returning a large percentage of this excess cash to its
shareholders by actively purchasing back shares. Besides share
buyback, Coach has doubled its dividend payout in the past three
To know more about Coach, I recommend reading the following
Put me in Coach
Coach Inc: An undervalued luxury stock
Disclaimer: This is not a buy or sell stock tip. Please do your
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