Coach (
COH
) is a leading American marketer of luxury lifestyle handbags
and other fashion accessories for both men and women. It is one of
the most well-known accessories brands in the U.S. and also
maintains a presence in select international markets. Coach
competes with other premium apparel and accessories players
like Polo Ralph Lauren (
RL
), Liz Claiborne (
LIZ
), and AnnTaylor (
ANN
), as well as high-end brands like Louis Vuitton, Hermes,
Gucci and Prada.
In its fiscal Q2 2011 earnings release, Coach reported
significant sales improvement. Coach's direct-to-consumer sales (or
sales at Coach-owned stores and website) increased 17% in North
America during the quarter while Coach's indirect sales (or sales
to department stores and other third party specialty retail stores)
both in US and international markets increased 28%. Coach
witnessed strong growth in the retail channel with same store sales
increasing 12.6% in North America. Same store sales at
international department also showed double digit improvement.
Based on the strong Q2 results, we now have now updated our
price estimate for Coach stock to
$57.02
. We estimate that Coach's handbag business is the largest
division (by value) for the company, contributing 57% of our
estimated stock value.
See our full analysis and $57.02 price estimate
for Coach
Addressable U.S. Handbag and Accessory Market To Be Worth
$9 Billion
Coach reported a 14% rise in handbag and accessories sales in
North America during Q2 2011 driven by a similar increase in the
addressable U.S. handbag and accessory category. The firm forecasts
that the addressable category will increase to $9 billion in fiscal
2011, surpassing its previous peek.
We currently forecast that the daily handbag revenue per Coach
store will grow from around $8K in 2010 to around $15 K by the end
of our forecast period due to strong demand in international
markets. However, Coach's recent strength in North America
indicates that cautious consumers in the U.S. are turning to
"afforable luxury" as the economic outlook remain uncertain.
We believe Coach, already the market leader in the U.S. handbag
and accessories market and widely known for its "affordable luxury"
image, stands to benefit from this trend. The result presents
potential upside beyond our current handbag revenue per Coach store
forecasts and, accordingly, our
$57.02
price estimate for Coach stock.
We have also previously examined the potential upside to Coach
stemming from its expansion in China (See
Could Coach Replicate its Japanese Market Success
in China?
)
To see the impact that various trends in daily handbag
revenue per Coach store could have on Coach's stock value, drag
the trend line in the modifiable chart above.