Shifting Production Capacity from China Could Prove Costly for Coach

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Coach Inc. ( COH ) the leading American designer and marketer of luxury lifestyle handbags and other fashion accessories is planning to shift nearly half of its manufacturing out of China in order to avoid increasing labor cost. The widely recognized 'affordable luxury' brand competes with other premium apparel and accessories players like Polo Ralph Lauren's (NYSE:RL), Liz Claiborne (NYSE:LIZ) and AnnTaylor ( ANN ).

Even as Coach expands sales in China, it can no longer afford the high labor costs in a highly competitive world. With Coach planning to cut production in China to 40-50% from 85% at present and open new factories in countries where wages are lower like Vietnam, Philippines and India, it could lead to significant increase in the firm's capital expenditure.

We currently forecast Coach's capital expenditure to decrease as a % of its sales in the future as its store openings slow down due to market saturation. However, shifting production capabilities to new regions could lead to higher than expected CapEx for the firm leading to potential downside to our $57.49 Trefis price estimate for Coach , about 4% below the market price.

You can drag the trend lines above to see the impact of various capex scenarios on our estimated price Coach's stock.

See our full analysis for Coach.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: AEO , ANN , ARO , COH

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