Accessories like belts, wallets, wristlets & other items are
the second biggest contributors behind handbags for
) and represent around 30% of the firm's estimated equity value.
These two divisions make up just under 90% of the stock value by
our estimates and help differentiate the company from other
Abercrombie & Fitch
) and Gap (NYSE:GPS). Below we take a quick look at the
outlook for the two main drivers to our accessories forecast: daily
revenue per Coach store and EBITDA margin.
Belts, Wallets, Wristlets & Others at a
Coach sells belts, leather wallets, wristlets and other small
leather goods for women and men under the Coach brand. Women's
small leather goods, which coordinate with Coach handbags, include
money pieces, wristlets, and cosmetic cases. Men's small leather
goods consist primarily of wallets and card cases.
Novelty accessories include time management and electronic
accessories. Key fobs and charms are also included in this
The key drivers of profitability for Coach:
1. Belts, Wallets, Wristlets & Others: Daily
Revenue per Coach Store
Daily Belts, Wallets, Wristlets & Others Revenue per Coach
Store increased from $2,980 in 2005 to $3,920 in 2010 at an annual
growth rate of 5.6%, except the decline in 2009, as the luxury
sales grew during the period and Coach launched new and innovative
products within this division
We forecast Daily Belts, Wallets, Wristlets & Others Revenue
per Coach Store will grow at a high rate going forward reaching $8
K by the end of the Trefis forecast period.
2. Belts, Wallets, Wristlets & Others: EBITDA
Belts, Wallets, Wristlets & Others' EBITDA Margin has
historically been ~40% for Coach. However, it declined sharply
since 2007 reaching 33.4% in 2009, attributable to the following
factors: increase in promotional activities in Coach-operated North
American stores and sharper pricing initiatives, reducing retail
prices, in response to consumers' reluctance to spend in a
recessionary environment as well as increase in selling expenses as
number of Coach operated stores in North America, Japan and China
Belts, Wallets, Wristlets & Others EBITDA Margin jumped back
in 2010 to 35% primarily as gross margin improved driven by higher
full-priced sales and a decrease in SGA expense rate as Coach
leveraged its selling expense base on higher sales.
We expect Belts, Wallets, Wristlets & Others EBITDA Margin
to drop in the next couple of years and then remain constant for
the rest of the Trefis forecast period.
Our price estimate for Coach's stock stands at $57.49, which is
about 10% below the market price though if sales and profit margins
improve beyond our forecast, there could be upside to these
forecasts. You can see these by modifying the charts above.
See our complete analysis of Coach