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Investment Overview for Coach (NYSE:COH)
Below are key drivers of Coach's value that present opportunities for upside or downside to the current Trefis price estimate for Coach:
- North America Daily Handbag Revenue Per Coach Store: We currently forecast daily handbags sales at Coach stores in North America to increase marginally from $10.1k in 2012 to $10.8k by the end of our horizon on account of increased competition in the North American women's handbags and accessories category .
If Coach is able to counter rising competition from Michael Kors and Kate Spade, and its daily handbag revenue per Coach store in North America rises to $14k by the end of our horizon, then it represents 8% upside to our estimate. However, if the figure decreases to $9k, then it represents 5% downside to our estimate.
- Total Handbag International Revenues: We currently forecast handbags international revenues to increase from $977 million in 2012 to $2,040 million in the long run. We expect these sales to grow rapidly on account of rapid growth in the Chinese and other international markets.
If Coach's growth slows down in China and handbag international revenues increase only to $1.3 billion by the end of our horizon, then it represents 9% downside to our estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Coach at the top of the page.
Coach is a leading American marketer of luxury lifestyle handbags and other fashion accessories for both men and women. It is one of the well-known accessories brands in the US with a presence in select international markets and is widely perceived as an affordable luxury brand.
Coach's products include handbags, belts, wallets, wrist-lets, small leather goods, electronic accessories, business cases, travel bags, apparels, jewelry, fragrance, eye wear, footwear, and watches.
Coach distributes its products through a multi-channel distribution system, offering products at Coach operated stores in North America, Japan and China (Coach Stores) as well as US department stores, international wholesale distributors and authorized retailers (department stores and other retailers).
We believe that Handbags is more valuable than Belts, Wallets, Wristlets & Others for Coach, due to the following reason:
High daily revenue per Coach store
Daily handbag revenue per Coach store in North America was $10,111 in 2012 compared to $4,356 for Belts, Wallets, Wrist-lets & Other Products. Handbags revenue contribution to total revenues has been declining gradually with Coach offering more innovative products under its Belts, Wallets, Wristlets & Other Products segment.
We estimate this trend to continue as Coach plans to build market share in the North American women's accessories market and continues to expand its accessories line of products. Additionally, Coach's focus on developing the men's business segment should also increase the net contribution to Coach's revenues from accessories. However, handbags revenues will continue to a command maximum share of total revenues in the future.
Demand for luxury goods is correlated with economic growth
Demand for luxury, fashion goods can be an indicator of flourishing economies. It is observed that during boom times, consumers with higher incomes tend to consume more high-end goods like leather handbags, designer clothes, branded watches etc.
Luxury goods are cyclical and correlate with GDP in specific regions, often exaggerating the up and down swings in the economy. As the global economy recovers, we expect the luxury goods market to see the pre-recessionary growth of 7-8%.
Increasing demand for luxury goods in China and other emerging markets
Luxury consumption in China has seen double digit growth in recent years as a result of rapid economic growth and rising standards of living in China. Despite weak macro-economic conditions globally and a threat to China's economy from surging inflation, luxury goods sales continue to grow strong in China. The Chinese market is expected to become the largest luxury market by 2014, comprising an estimated 23% of the world market, thereby providing tremendous growth potential.
Emerging markets will see the highest growth in new openings of directly-operated stores in the coming years.
Increased competition from upcoming fashion companies such as Michael Kors
Coach is facing increased competition from upcoming fashion players such as Michael Kors and Kate Spade. These new companies are increasingly gaining traction in the market.
In Q2 2013, Coach's comparable store sales in North America declined owing to increased competition and heightened promotional activity in the market. Coach's comparable store sales also declined by 1.7% in Q4 fiscal 2013.
Transformation strategy underway
Coach aims to transform its brand image from an accessories brand to a lifestyle brand to elevate its brand appeal amid growing competition from fashion newcomers including Michael Kors.
As part of this strategy, Coach relaunched shoes in more than 170 retail stores in North America in March 2013.
Later, the company will also bolster its product portfolio with outerwear, apparel, watches and jewelry.
We expect this strategy to result in higher sales of lifestyle categories. Additionally, traffic at Coach's stores could increase due to this strategy which would also positively impact the sale of other products.
Consumer shift to affordable luxury
Affordable luxury brands and private labels have held up solidly during the current market conditions, while luxury and premium end companies, including Louis Vuitton and Hermes, have all reported slowing sales. The luxury market has been hit by a renewed sense of consumer ethics, which has seen some consumers turning away from the luxurious lifestyle to take on a "less is more" approach.
This trend was observed even before the economic downturn, with consumers shying away from luxury items, hinting that consumers may not return to buy luxury goods in the near future and may opt for more sober choices.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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