An Upside / Downside Scenario for Coach

Coach Inc.’s (NYSE:COH) most important business division – handbags – accounts for roughly 57% of the company’s stock value. Coach is a leading American marketer of luxury lifestyle handbags and other fashion accessories for both men and women and competes with other premium apparel and accessories players like Polo Ralph Lauren’s (NYSE:RL), Liz Claiborne (NYSE:LIZ) and Ann (NYSE:ANN). See a potential upside and downside scenario below. You can drag the trend lines to create your own scenario and see its impact on the stock price estimate.

6% Upside Scenario: $60.77 Trefis Price Estimate for Coach

Higher Handbags EBITDA Margin:

We currently forecast handbags’ EBITDA margin to decrease from 35% in 2010 to 32% in 2012 and then remain constant till the end of the Trefis forecast period.

However, there could be 5-6% upside to the Trefis price estimate if margin were to remain constant at current level in the future instead of declining as Coach cuts down on costs by shifting production to countries with cheaper labor.

9% Downside Scenario: $52.41 Trefis Price Estimate for Coach

Lower Daily Handbag Revenue Per Coach Store:

We currently forecast the daily revenues from the sale of handbags at Coach stores will almost double about $8.4 K in 2010 to $16K by the end of the Trefis forecast period.  There could be however be a 9-10% downside to the Trefis price estimate if daily revenues from handbag sales at Coach stores increase at a slower rate (in line with growth in 2010) reaching close to $12 K by the end of Trefis forecast period.

We have a $57.49 base price estimate for Coach’s stock, implying a discount to market price.

See our full analysis for Coach stock here.