Why Has Coach’s Stock Price Risen 30% In One Year?

COH: Coach logo

Coach Stock Price- 1

The primary driver for the rise in the share price of Coach (NYSE:COH) has been an impressive string of results coming out of the company. In the latest fourth quarter and year ended June 2016 results, the company posted a 15% and 7% growth in revenues, respectively. Strong growth internationally, and a turnaround of the company’s operations in North America, can be held responsible for the stirring results. These factors have been described in greater detail below:

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1) Turnaround of Coach’s North American Business

The biggest news to come out of Coach’s Q4 and FY 2016 results was the return to positive comparable sales in its North American segment. This was for the first time since the third quarter of 2013, representing the seventh sequential improvement since the transformation plan was implemented by the company. This was driven by growth in the direct business, and actions to elevate the brand positioning and streamline the distribution, given the highly promotional nature of its department store channel. The company’s 1941 collection and its Disney collaboration resonated well with the consumers, and revenue in the women’s segment reaped its benefits, along with the company’s leather goods. The majority of the renovated luxury concept stores’ comparable sales exceeded those of its other stores, with a further 165 converted in the quarter, taking the total up to 300 for the financial year and 450 overall. The company also noted a low single digit increase in the North American premium women’s handbag and accessories market, with Coach attaining a share of 16%, down from 17% a year ago. The company’s above $400 price bracket rose in penetration, and now constitutes 40% of its handbag sales, up from 30% last year.

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2) Collaboration With Peanuts And Disney

Coach teamed up with Disney for a range of handbags, t-shirts, and sneakers, featuring the world’s most iconic mouse. This collection debuted in New York and Paris on June 10th, followed by its other stores on June 17th. Post the launch, several items sold out quickly online, including all four colors of the $395 kisslock handbags, designed in the shape of Mickey’s ears, and $1,500 leather dolls and bean bags. Such limited editions help prevent discounting in order to move inventory, which would otherwise lower the brand value. One of the reasons for a successful third quarter was the positive response to its Coach X Peanuts collaboration, also called the Snoopy collection. During the third quarter conference call, Victor Luis, Coach’s CEO, mentioned the “exceptional response to the Snoopy fashion vignette,” implying a positive reaction by customers to the company’s innovation and novelty. While Peanuts and Snoopy are well-liked, their level of popularity can’t be compared with that of Mickey Mouse. Hence, we can expect the Disney collaboration to be a massive boost to the top line in FY 2017, beginning in July of this year. While the launch occurred very late into the second quarter, when only two weeks were remaining, positive media coverage and feedback resulted in higher than expected sales for the quarter.

3) Strong Growth In The International Markets

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The International segment also delivered strong results, particularly in Europe and Mainland China, where double digit growth was reported in the quarter. Sales in Greater China were led by growth on the Mainland, but was offset by continued weakness in Hong Kong and Macau. For the year, sales increased 5% on a constant currency basis, to $605 million, beating the $600 million guidance provided by the company, in spite of a further devaluation in the renminbi. Chinese consumers play an important role in the growth for the company, with Chinese tourists driving demand in a number of regions, including Southeast Asia. Decline in travel to Japan, impacted by currency fluctuations, resulted in a 5% fall in sales there in the quarter, on a constant currency basis, but increased 7% on a dollar basis. Despite relative softness in France, sales rose 50% in Europe in FY 2016, reaching $135 million, exceeding expectations of sales of $125 million.

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Coach.
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