Switch to:
More From Other Websites
Bargains: Four Stocks Unfairly Pummeled Aug 28 2015
Kate Spade expands: Kids & home Aug 28 2015
China Confounds, U.S. Resounds Aug 28 2015
Coach shrinks Hong Kong presence amid drop in China shoppers Aug 28 2015
Coach shrinks Hong Kong presence amid drop in China shoppers Aug 28 2015
COACH INC Financials Aug 27 2015
Legendary Coach Lou Holtz Joins SiriusXM to Host College Football and Golf Shows Aug 26 2015
Denim recovery driving Abercrombie Aug 26 2015
Top trades: McDonald's and Coach Aug 18 2015
Luxury Handbag Pair Trade: Jefferies Likes Coach, Downgrades Vera Bradley Aug 18 2015
Morning Movers: Wal-Mart Slips on Earnings, Guidance; Home Depot Jumps Aug 18 2015
Early movers: HD, WMT, DKS, URBN, BAM, MCD & more Aug 18 2015
Coach (COH) Stock Upgraded at Jefferies,Turnaround Takes Hold Aug 18 2015
Coach upgraded by Jefferies Aug 18 2015
Coach stock upgraded to buy at Jefferies on high hopes for turnaround Aug 18 2015
COACH INC Files SEC form 8-K, Amendments to Articles of Inc. or Bylaws; Change in Fiscal Year,... Aug 17 2015
10-K for Coach, Inc. Aug 16 2015
COACH INC Files SEC form 10-K, Annual Report Aug 14 2015
How Well-Heeled Investors Can Win With Footwear Stocks Aug 13 2015
Michael Kors Holdings Ltd. Earnings Analysis: By the Numbers Q2*, 2015 Aug 13 2015


Add Notes, Comments

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

User Comments

Mocheng
ReplyMocheng - 1 year 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.
Stockvaluepicker
ReplyStockvaluepicker - 1 year 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
Valuation
- 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)

GuruFocus Premium Plus Membership

FEEDBACK