Coach Earnings Preview: Holiday Spending And China Growth In Focus

by Trefis Team
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Coach Inc. (NYSE:COH), a leading American marketer of luxury lifestyle handbags and other fashion accessories will announce its Q2 2013 results on January 23. With an average y-o-y growth of 13.4% in net sales, the company has witnessed rapid growth in the last four quarters. A number of strategic initiatives taken by Coach has helped the company increase revenues despite the macro headwinds.

International expansion, especially increasing its footprint in China, a focus on tapping growth in the men’s accessory market and leveraging the power of digital world to drive its internet business are key factors that we feel will help fuel Coach’s earnings this quarter as well. Additionally, an increase in consumer shopping behavior during the holiday season will further drive Q2 2013 revenue.

See our complete analysis for Coach

Growth In China To Fuel International Operations

International sales, representing sales outside North America, contribute to approximately one-third of Coach’s total sales. Coach has been actively expanding its international presence by opening new stores and adding more distributors in countries such as China, Japan, Singapore, Taiwan, Malaysia and Korea. It considers China to be its biggest growth opportunity and opened eight new stores in the country in Q1 fiscal 2013, increasing the total number of stores in the region to 104. Coach plans to open 30 new stores in China during fiscal 2013. [1] To sell its products directly to customers, Coach recently started an e-commerce website in the country.

Though China’s growth rate slowed down in 2012 due to macro headwinds, it remains of the fastest growing economies in the world. Its y-o-y GDP growth rate increased to 7.9% in the last quarter of 2012 compared to 7.4% in the previous quarter. We consider this to be a favorable trend for Coach and expect increasing demand from China to be an important factor driving Coach’s top-line growth. [2]

Holiday Season To Drive Sales In North America

North America accounts for two-third of Coach’s total sales. We believe that higher consumer demand in the holiday season will spur Q2 2013 revenues. The company introduced a wide range of gifts and launched innovative marketing programs during the holiday season which we believe will positively impact sales in the North American region.

Growing Focus On Men’s Business

Coach’s focus on men’s business has helped expand its business in North America as well as the international markets. Its revenues from men’s business doubled in fiscal 2012 compared to 2011. In addition to opening some dedicated men’s stores, the company added men’s products to 14 stores in North America in Q1 2013. [3]

This has helped reinforce Coach’s brand in men’s bags and accessories and has allowed the company to leverage the growing men’s business market within Asia. We expect to see higher revenue from Coach’s men’s business in Q2 2013.

Our price estimate for Coach stands at $67.85, implying a premium of about 10% to the market price.

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  1. Coach Management Discusses Q1 2013 Results – Earnings Call Transcript, Seeking Alpha, October 23, 2012 []
  2. Quarterly Growth Gives China Boost, The Wall Street Journal, January 18, 2013 []
  3. Coach Management Discusses Q1 2013 Results – Earnings Call Transcript, Seeking Alpha, October 23, 2012 []
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