Rumors of Slowdown at Coach (COH) Overdone; Yield, Cash Flow Still Outpace Peers - Barron's
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Barron's was out over the weekend with a few comments on accessory and handbag giants Michael Kors (NYSE: KORS) and Coach, Inc. (NYSE: COH). The magazine noted that Coach has about $5 billion in annual revs, twice as much as Kors. Operating profit margins are also robust for Coach. Given the numbers, Coach and Kors share a nearly-equal enterprise value as sentiment behind Kors is much stronger.
Over the last 12 months, Kors shares are up 45 percent, while Coach is off 37 percent. Even with Coach be up an adjusted 20 times multiple since 2000, Barron's isn't throwing the towel in on the venerable handbag maker quite yet.
Three concerns investors have include the ease of bringing handbags to market, which has sprung up a plethora of competition for Coach (including Kors and Kate Spade, among others), women potentially diverting more of their fashion budgets away from larger, well-known handbag brands, and Coach potentially turning to discounting to boost overall sales.
Free cash at Coach is about 8 percent of its stock value, while its dividend currently yields about 2.6 percent (following a 33 percent boost in 2012). Moving forward, investors will also see changes at Coach stores as the brand moves from one key item into being a "top-to-bottom lifestyle brand," quipped CEO Lew Frankfort recently. Sales are expected to increase 7 percent in 2013 and 8 percent next year.
In Asia, Coach is still seeing stronger growth. China sales rose 40 percent in the most recent quarter, while the whole handbag and accessory market has outgrown that of the U.S. Expansion in China is set for a 35 percent increase in square footage through fiscal 2013. One kink in China is higher selling and advertising costs, despite China commanding a higher overall price per unit.
There is also a little concern that U.S. accessory purchases could slowdown, but one analyst from William Blair disagrees. She noted that shoppers look for discounts at traditional mall stores, while still aiming to spend about $1,000 on a designer handbag. While typical clothing can look the same from store to store, a good handbag design (think Louis Vitton) can last for years, with designers simply changing the fabric and texture of the wares.
As Coach moves beyond the handbag market, investors should know that there is a heightened risk to "fashion fail," Barron's states. At 13 times expected 2013 earnings, Coach trades at a discount to peers (Kors is at 32 times) and the broader market. Even Kors is heeding a little bit of caution, recently announcing plans to unload three million shares.
For investors looking for a stock with plenty of growth potential and decent yield, Coach might be the most fashionable choice out there. Shares are up 0.9 percent Monday.
Over the last 12 months, Kors shares are up 45 percent, while Coach is off 37 percent. Even with Coach be up an adjusted 20 times multiple since 2000, Barron's isn't throwing the towel in on the venerable handbag maker quite yet.
Three concerns investors have include the ease of bringing handbags to market, which has sprung up a plethora of competition for Coach (including Kors and Kate Spade, among others), women potentially diverting more of their fashion budgets away from larger, well-known handbag brands, and Coach potentially turning to discounting to boost overall sales.
Free cash at Coach is about 8 percent of its stock value, while its dividend currently yields about 2.6 percent (following a 33 percent boost in 2012). Moving forward, investors will also see changes at Coach stores as the brand moves from one key item into being a "top-to-bottom lifestyle brand," quipped CEO Lew Frankfort recently. Sales are expected to increase 7 percent in 2013 and 8 percent next year.
In Asia, Coach is still seeing stronger growth. China sales rose 40 percent in the most recent quarter, while the whole handbag and accessory market has outgrown that of the U.S. Expansion in China is set for a 35 percent increase in square footage through fiscal 2013. One kink in China is higher selling and advertising costs, despite China commanding a higher overall price per unit.
There is also a little concern that U.S. accessory purchases could slowdown, but one analyst from William Blair disagrees. She noted that shoppers look for discounts at traditional mall stores, while still aiming to spend about $1,000 on a designer handbag. While typical clothing can look the same from store to store, a good handbag design (think Louis Vitton) can last for years, with designers simply changing the fabric and texture of the wares.
As Coach moves beyond the handbag market, investors should know that there is a heightened risk to "fashion fail," Barron's states. At 13 times expected 2013 earnings, Coach trades at a discount to peers (Kors is at 32 times) and the broader market. Even Kors is heeding a little bit of caution, recently announcing plans to unload three million shares.
For investors looking for a stock with plenty of growth potential and decent yield, Coach might be the most fashionable choice out there. Shares are up 0.9 percent Monday.
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