We reaffirm our long-term Neutral recommendation on
Coach, Inc. ( COH ) with a target
price of $52.00. The stock also retains a Zacks Rank #3 (Hold).
Why the Reiteration?
Being a leading American marketer of fine accessories and gifts,
Coach boasts a proven strategy of investing in stores to enhance
store sales productivity through product innovation, compelling
pricing strategy, new merchandise assortments, and a cost-effective
global sourcing model, which should help drive comparable-store
sales and operating margins in the long term.
However, tough macroeconomic conditions and intense promotional
strategies undertaken by competitors are weighing upon the
company's performance, as evident from its lower-than-expected
second-quarter fiscal 2013 results. The quarterly earnings of $1.23
per share missed the Zacks Consensus Estimate of $1.29 but rose
from $1.18 in the prior-year quarter.
Net sales of $1,503.8 million also came below the Zacks
Consensus Estimate of $1,605 million but rose 4% year over year.
International segment remained robust in the quarter with sales
rising by 12%. China business sustained its strong performance as
sales soared about 40% with a double-digit rate increase in
The rise in total sales was a positive indication for the
luxury-goods market, battered by the recent economic upheaval.
The company remains optimistic about its dual-gender Legacy
lifestyle collection, dedicated men's stores and international
growth opportunities to counter the soft consumer scenario. The
company is also aggressively expanding its e-Commerce platform.
Management expects to attain more than $600 million in sales
worldwide from its Men's business and at least $400 million in
sales from China in fiscal 2013.
Store expansion strategy remains on the cards for Coach. In
North America, Coach plans to open 25 net new stores. On the
international front, it plans to add 30 new outlets in China and 10
net new stores in Japan. The company through its distributor
partners plans to augment business opportunities in Australia,
Thailand, Vietnam, Indonesia, Brazil, Venezuela, Colombia, Panama,
Chile, Peru and Kuwait. The company expects to enhance its
operations in Europe.
The company's long-term growth drivers also include expansion of
its global distribution model and venturing into under-penetrated
markets. Moreover, a healthy balance sheet augurs well for future
growth. However, we remain concerned about erratic consumer
behavior and a soft economic recovery.
Stocks Worth Considering
Stocks worth considering in the textile, apparel industry are
G-III Apparel Group, Ltd. ( GIII ),
Hanesbrands Inc. ( HBI ) and
Gildan Activewear Inc. ( GIL ), all of which
hold a Zacks Rank #2 (Buy). The stocks are expected to continue
with their upbeat performances and sustain their positive earnings
surprise trend.COACH INC (COH): Free Stock Analysis ReportG-III APPAREL (GIII): Free Stock Analysis
ReportGILDAN ACTVWEAR (GIL): Free Stock Analysis
ReportHANESBRANDS INC (HBI): Free Stock Analysis
ReportTo read this article on Zacks.com click here.Zacks Investment