)is a leading American marketer of luxury handbags and other
fashion accessories. While the company has historically achieved
high top line growth, with an average y-o-y sales growth of
13.4% during the four quarters through Q1 2013, its growth rate
slipped in Q2 2013. In Q2 2013, Coach registered only a 4% annual
rise in sales with its North American sales increasing by a mere
1%. Its net margin also declined by 50 basis points annually to
23.5% in Q2. Coach's stock price has declined by almost 20% since
its last quarterly results were announced. (Read:
Coach Quarterly Results Disappoint Due To Weak N.
In this article, we provide a quick overview of the major
product categories of Coach, its geographical presence and the key
growth strategies and risks that impact its valuation.
See our complete analysis for Coach
What are the major product categories for Coach?
Coach's product portfolio consists of distinct categories
including handbags, belts, leather wallets, wristlets and other
small leather goods (such as cosmetic cases, wallets and card
cases), apparel, travel bags, jewelry and fragrance. Footwear, eye
wear and watches are also sold under a licensing relationship by
Handbags represent the most dominant product category for Coach
and account for around 65% of the company's revenues and contribute
around 60% to our price estimate for Coach. Belts, wallets,
wristlets and other small leather goods represent the second
biggest category accounting for around 28% of Coach's sales. The
other products including apparel, travel bags, jewelry &
fragrance, footwear, etc. account for around 7% of Coach's
What are the major geographical regions for
Coach operates in North America as well as in international
markets. Through its North American segment, Coach sells products
through Coach-operated stores (including e-commerce sales) and
wholesale distributors. The North American segment accounts for
around two-thirds of its total sales. The international segment
represents sales through Coach operated stores in Japan (including
internet sales), mainland China, Hong Kong and Macau, Taiwan,
Singapore, Korea, Malaysia, as well as sales to wholesale
distributors in more than 20 countries.
What is the growth strategy for Coach?
The major growth strategy for Coach includes growing its
international operations and focusing on men's business and digital
world to enhance its revenues.
Expanding international operations
International sales contribute approximately one-third to
Coach's total sales. Coach is aggressively expanding its
international operations by opening new stores in countries such as
China, Japan, Singapore, Taiwan, Malaysia and Korea. China is
positioned as the biggest growth opportunity for Coach and it is
witnessing high growth from the region. Chinese sales were up by
40% annually in Q2 2013. Coach aims to open 30 new stores in China
during fiscal 2013 and it recently opened an e-commerce site in the
country to further drive its sales.
Coach also aims to expand in the regions of Europe, Latin
America (including Brazil, Venezuela, Columbia, Panama, Chile and
Peru), other Asia Pacific countries (Australia, Thailand and
Indonesia) and in the Middle East by growing its distributor
business in these regions. We feel that the international expansion
strategy will help bolster Coach's sales as the company will be
able to leverage its strong brand image in the growing luxury
market in Asia.
Focus on men's business
Growing its men's business is another priority for Coach. Coach
is opening various dedicated men's stores in addition to dual
gender stores to pursue this strategy. Coach's revenues from men's
business doubled in fiscal 2012 compared to the previous year.
Moreover, the company recently reported that it expects to achieve
50% growth in its men's business in 2013. As the men's luxury
business is prominent in Asian markets, this strategy will also
allow Coach to enhance its revenues from international markets.
Bolstering e-commerce sales
With growing Internet usage and the increasing adoption of
smartphones globally, Coach is also focusing on growing its
revenues from the Internet and mobile channel. The company aims to
leverage coach.com, other global e-commerce sites, marketing sites,
third-party flash sites and social networking as part of this
What are the major risks faced by the company?
Within the North American market, Coach is facing intense
competition from smaller players such as Michael Kors, Kate Spade
and Tory Burch. In its latest quarter, Coach's North American sales
registered a 2% comparable store sales decline. While its
competitors resorted to promotional activity during the holiday
season, Coach refrained from offering such discounts to protect its
brand image. However, this led to a decline in its market share in
the handbags market. We feel that Coach will continue to face
intense competition from these smaller companies in the future,
which can negatively impact its sales.
Coach's Japanese operations reported a 2% decline in the latest
quarter (in constant currency terms). We feel that this may
indicate weakening demand within the region for Coach's products.
In terms of dollar sales, sales in Japan marked a 7% annual
decrease. The weakened yen affected total Coach's sales growth by
1%. This represents a headwind for Coach as continued weakening of
yen may affect its sales growth in the future.
Coach is relying on continued growth from China to further drive
its revenues. However, if the growth rate of the Chinese economy
continues to slow down, it can hamper Coach's sales within the
region. Demand for luxury products is correlated to macroeconomic
factors, such as consumer confidence and spending levels and
uncertainty in economic conditions can negatively impact Coach's
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