Switch to:
More From Other Websites
Consumer Cyclical Picks for a Slower-Growth World Sep 30 2014
Charlie Weis Is Fired as Kansas Football Coach With 6-22 Record Sep 28 2014
Career restart: Position yourself for a return to the job market Sep 27 2014
[$$] Coach Executive Chairman to Retire in November Sep 25 2014
Coach Executive Chairman Frankfort to retire in November Sep 25 2014
COACH INC Files SEC form 8-K, Change in Directors or Principal Officers, Financial Statements and... Sep 25 2014
Coach Announces the Retirement of Lew Frankfort, Executive Chairman Sep 25 2014
16 Prudent Speculator Winners Win More Than 16 Losers Lose And Thoughts On Oracle Sep 25 2014
Go for Chess Not Checkers When Running a Business Sep 24 2014
COACH INC Files SEC form 8-K, Change in Directors or Principal Officers, Financial Statements and... Sep 22 2014
Time Is Already Nearly Up Sep 22 2014
8 annoying things that your coworkers do Sep 21 2014
A Losing Season for Coach? Sep 18 2014
What's In And What's Out: 4 Handbag Makers To Watch Sep 17 2014
Financo’s Harrison, Bloomberg’s Rupp on Michael Kors (Audio) Sep 17 2014
Taking Stock: Harrison and Rupp on Michael Kors Sep 16 2014
Coach: Why It Didn't Get Downgraded Today Sep 16 2014
Canaccord sticks with hold rating on Coach Sep 16 2014
Chef cooks his way through farmers markets Sep 15 2014
[video] Dash for trash: TGT, COH & more Sep 12 2014

Add Notes, Comments

If you want to ask a question, or report a bug, please create a support ticket.

User Comments

ReplyMocheng - 3 months ago
Stockvaluepicker,I think coach brand got trashed, heard a lot of shoppers cursing at Coach when they bought at a retail store 1 month before and saw the same bags are outlets 30% lowered in price.
ReplyStockvaluepicker - 3 months ago
Coach, Inc (NYSE: COH, $40) O/S: 278.8m; Market cap: $11.07bn; EV: $10.52bn; P/E: 12; EV/EBITDA: 7
Coach is a luxury goods retailer and has been in the business for > 70 years. Company sells premium leather handbags, footwear, watches and accessories for women (80% of sales), men (10%) and other (10%). Coach sells its products in North America (70% of sales) and internationally (30%) including Japan and China.
Investment thesis:
After its recent free-fall (YTD-28%) due to weak Q3 results (SS sales down -13% q/q in 2Q and -21% q/q in 3Q in NA) and lower guidance, Coach offers a compelling long-term investment opportunity.
1. First, Coach is led by the one of the best management team in retail. 2004-2013, sales grew from $1.3b to $5.0b (CAGR 20%); FCF/share up from $0.99 to $4.10 (CAGR 17%)
2. Coach has strong moat (in terms of emotional attachment with customer); evidenced by ROC of ~35% consistently over the last 10 years.
3. Despite, stiff competition from Michael Kors, Coach achieves gross margins of 70%; best margins in the luxury retail sector
4. Growth prospects are robust as new product line (focused on Men) and geographic expansion (China sales up 25%) working well
5. Huge operating leverage
6. No debt; cash balance of ~$800m
All good, but why the market is punishing the stock/ bear hug?
1. NA sales decline intensified in Q3
2. Guidance lowered (management expects NA sales decline in 2015 also)
3. Dual sales (factory outlet and direct stores) channel might dilute the brand value
4. International sales might drag gross margins as competition intensifies
5. Market has recently seen many retail turnarounds failing (JC Penny)
Argument: Sales decline; management is
- NA gross margins are at (68% to 63%) and International gross margins are at (80%) - effects of foreign currency translation should be noted.
- International expansion should boost sales growth
- Huge margin of safety
- Intrinsic value in different scenario
- Bull Case: $74 (upside 84%); Bear Case: $52 (upside 30%); Base case:$62(upside 54%)

Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial