Coach Bags Big Growth In China Headed To $81

by Trefis Team
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American aspirational luxury retailer Coach (NYSE:COH) announced impressive Q3 fiscal 12 earnings with an increase of  17% in net sales and 18% in gross profits compared to Q3 last year. [1] The major highlights of the earnings were impressive performance in Coach’s Chinese business along with the company’s growing foothold in the men’s accessories business. ((Coach’s CEO talks about Q3 earnings, Source: Seeking Alpha)) Coach is the leading American marketer of luxury lifestyle handbags and other fashion accessories and competes with premium apparel and accessories players like Polo Ralph Lauren’s (NYSE:RL), Liz Claiborne (NYSE:LIZ) and AnnTaylor (NYSE:ANN).

We have a revised price estimate of $81.24 for Coach stock, which is roughly 10% ahead the current market price. Along with a change in Coach’s current net cash/debt position, the adjustments in our price estimates primarily reflects growth in the company’s China revenues and a strong outlook for men’s accessories business.

Check out our complete analysis of Coach


China business remains the primary growth driver

The major highlight of Tuesday’s Q3 earnings release was Coach’s impressive performance in China. China is the largest geographical market outside U.S. for Coach, and development of Chinese business remains the highest priority for Coach in the near term. In the third quarter Coach’s China sales grew by a massive 60% accompanied by a double digit increase in comparable sales. In particular, Coach’s non comparable sales was contributed ahead of its comparable sales to the net China sales. This testifies the high growth potential of Coach in China and the acceptance of Coach’s aspirational luxury brand image in China, even with the newly opened stores.

For the next quarter, Coach plans to open nearly 10 new stores in mainland China to bring the total China store count to about 95 by the end of FY 12. In its Q2 2012 earnings call, Coach had declared that it was targeting $300 million revenues from Greater China in 2012. Taking a cue from the Q3 results, we see the company easily achieving its Chinese sales target.

Q3 also highlighted impressive strides in Men’s accessories business

Another positive note from the earnings was Coach’s growing foothold in men’s accessories business. The development of a men’s business now form the crux of Coach’s North American growth strategy. To achieve that Coach is implementing multiple initiatives which include opening dedicated men’s stores, shop-in-shops, dual-gender locations and expanding its men’s assortments in existing stores and across all geographies and channels.

For the current fiscal year Coach aims to double its men’s revenues to over $400 million. Additionally, the company is also aiming to increase the contribution from its men’s business to the net sales from 8% at present to 10% by the end of next year.

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Notes:
  1. Coach delivers strong Q3 results, Source: Coach IR []
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