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 top and bottom lines in fiscal 2012. 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 growing
emerging markets, such as China, Brazil, Vietnam and Kuwait to
increase its brand awareness.
Management now expects to achieve at least $300 million in sales
in fiscal 2012 in China, backed by the sustained growth momentum it
is currently witnessing. As a part of its strategy to directly
control certain Asian markets, Coach is now directly operating its
retail business in Singapore and Taiwan. The company is also under
discussion to acquire its Malaysian retail business in
July.Moreover, the company has entered into a deal to take charge
of its Korean retail business in early fiscal 2013.
Coach maintains a healthy balance sheet with significant cash
balance and negligible debt load. The company also 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.
Efforts Reaping in Healthy Results
Despite sluggish recovery in the economy, Coach posted
better-than-expected third-quarter 2012 results on the back of
healthy sales in North America and China. Strong brand image,
geographical expansion, and new pricing and promotional policies in
North American factory business were also the factors behind the
The quarterly earnings of 77 cents a share beat the Zacks
Consensus Estimate by a couple of cents, and increased 24% from 62
cents earned in the prior-year quarter buoyed by strong top-line
growth. Coach said that net sales for the quarter came in at $1,109
million, up 16.6% from the year-ago quarter, and ahead of the Zacks
Consensus Estimate of $1,101 million.
The rise in sales was a positive indication for the luxury-goods
market, battered by the recent economic upheaval. Coach's sustained
focus on store sales productivity, merchandising, and marketing and
strategic pricing have helped it remain afloat in a difficult
consumer environment as well as drive comparable-store sales
Coach remains optimistic about its dedicated Men's stores, and
expects the Men's business to rise twofold to more than $400
million in fiscal 2012 on a global basis. Management aims to
enhance Men's collections in 100 retail stores in North America by
the end of fiscal 2012, up from 42 at the end of the third
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 another concern for Coach's
business model, which requires sustained focus on product and
design innovation. The company's pioneering 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 $65.00. However,
Coach, which competes with
Polo Ralph Lauren Corporation
), holds a Zacks #2 Rank that translates into a short-term 'Buy'
rating, and reflects the company's optimistic attitude of
accomplishing double-digit growth in both top and bottom lines
COACH INC (COH): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis
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