Adding Judgment Series - COH Research
COACH, INC. NYSE-COH TIMELINESS SAFETY TECHNICAL
3 3 3
RECENT PRICE
High: Low:
Lowered 2/25/11
5.3 2.5
8.9 4.3
20.4 7.3
28.8 16.9
21.4 RELATIVE DIV’D Median: 21.0) P/E RATIO 1.28 YLD 1.7% 71.87 P/ERATIO 19.7(Trailing: 36.8 24.5
45.0 25.2
54.0 29.2
37.6 13.2
37.4 11.4
58.6 33.0
69.2 45.7
79.7 59.7
Target Price Range 2015 2016 2017
LEGENDS 16.0 x ″Cash Flow″ p sh . . . . Relative Price Strength Raised 4/13/12 2-for-1 split 7/02 BETA 1.25 (1.00 = Market) 2-for-1 split 10/03 2-for-1 split 4/05 2015-17 PROJECTIONS Options: Yes Ann’l Total Shaded areas indicate recessions
New 2/15/02
Price Gain Return High 135 (+90%) 18% Low 90 (+25%) 8% Insider Decisions to Buy Options to Sell
J 0 0 0
J 0 0 0
A 0 1 1
S 0 4 2
O 0 2 2
N 0 3 2
D 0 0 0
J 0 3 3
160 120 100 80 60 50 40 30
2-for-1
F 0 1 1
% TOT. RETURN 3/12
Institutional Decisions 2Q2011 3Q2011 4Q2011 249 305 263 to Buy to Sell 328 292 342 Hld’s(000) 259404 258936 252636
VALUE LINE
Percent shares traded
30 20 10
1 yr. 3 yr. 5 yr.
THIS STOCK
VL ARITH.* INDEX
50.6 380.1 60.2
0.3 136.4 33.1
20 15
Coach, Inc. was founded in 1941 as a 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 © VALUE LINE PUB. LLC 15-17 maker of leather handbags. It was acquired 2.01 2.60 3.48 4.52 5.71 7.01 9.45 10.16 12.15 14.41 16.90 19.45 Sales per sh A 27.25 by Sara Lee in 1985. 7,380,000 shares were .31 .48 .80 1.18 1.51 1.93 2.50 2.34 2.90 3.49 4.05 4.65 ‘‘Cash Flow’’per sh 6.50 issued to the public at $16.00 a share in Oc5.65 .24 .40 .68 1.00 1.27 1.69 2.06 1.91 2.33 2.92 3.52 4.05 Earnings per sh A B tober, 2000. The transaction was led by .38 .68 1.05 1.35 Div’ds Decl’d per sh 2.00 -------.08 Goldman Sachs & Co., Morgan Stanley 5.07 5.59 6.00 7.60 Book Value per sh 12.75 .73 1.17 2.06 2.73 3.21 5.13 4.50 5.33 Dean Witter, and Prudential Securities. Sara 357.81 366.02 379.24 378.43 369.83 372.52 336.73 318.01 296.87 288.51 284.00 280.00 Common Shs Outst’g D 265.00 Lee subsequently distributed the remaining 22.1 21.4 26.5 25.8 26.2 24.7 17.7 11.3 20.0 15.2 17.3 Bold figures are Avg Ann’l P/E Ratio Value Line stock to shareholders. .97 1.09 Relative P/E Ratio 1.35 1.21 1.22 1.40 1.37 1.41 1.31 1.07 .75 --
CAPITAL STRUCTURE as of 12/31/11 Total Debt $24.0 mill.
Due in 5 Yrs $24.0 mill.
LT Debt $23.2 mill. LT Interest $.9 mill. (1% of Cap’l) Leases, Uncapitalized: Ann’l rentals $129.1 mill. No Defined Benefit Pension Plan Pfd Stock None Common Stock 287,767,818 shs. as of 1/27/12 MARKET CAP: $20.7 billion (Large Cap) CURRENT POSITION 2010 2011 12/31/11 ($MILL.) Cash Assets 696.4 702.0 1085.6 Receivables 109.1 143.0 212.04 Inventory (Avg Cst) 363.3 421.8 429.0 Other 133.8 185.6 169.4 Current Assets 1302.6 1452.4 1896.0 Accts Payable 105.6 118.6 136.7 Debt Due .7 .8 .8 Other 422.7 473.6 673.5 Current Liab. 529.0 593.0 811.0 ANNUAL RATES Past of change (per sh) 10 Yrs. Sales 20.5% ‘‘Cash Flow’’ 28.5% Earnings 30.5% Dividends -Book Value 24.5% Fiscal Year Ends
2009 2010 2011 2012 2013 Fiscal Year Ends
2009 2010 2011 2012 2013 Calendar
2008 2009 2010 2011 2012
Past Est’d ’09-’11 5 Yrs. to ’15-’17 22.0% 15.0% 20.0% 15.0% 19.5% 16.0% - - 32.0% 15.0% 16.0%
QUARTERLY SALES ($ mill.) A Sep.Per Dec.Per Mar.Per Jun.Per 752.5 960.3 740.0 777.7 761.4 1065.0 830.7 950.5 911.7 1264.4 950.7 1031.7 1050 1449 1109 1192 1200 1650 1250 1350 EARNINGS PER SHARE A B Sep.Per Dec.Per Mar.Per Jun.Per .44 .67 .38 .43 .44 .75 .50 .64 .63 1.00 .62 .67 .73 1.18 .77 .84 .85 1.35 .90 .95 QUARTERLY DIVIDENDS PAID E Mar.31 Jun.30 Sep.30 Dec.31 -----.075 .075 .075 .075 - .15 .15 .15 .15 .225 .225 .225 .225 .30
Full Fiscal Year
3230.5 3607.6 4158.5 4800 5450 Full Fiscal Year
(A) Fiscal year ends Sat. closest to June 30th. (B) Diluted egs. Includes the expensing of stock options beginning in fiscal 2007. Reflects discontinuation of corporate accounts business
1.91 2.33 2.92 3.52 4.05 Full Year
-.225 .380 .750
719.4 70.7% 22.6% 212 85.8 35.5% 11.9% 128.2 3.6 260.4 32.7% 33.0% 33.0% --
--
--
--
--
--
--
.3%
953.2 1321.1 1710.4 2111.5 2612.5 3180.8 3230.5 74.2% 78.2% 80.0% 80.7% 80.5% 78.8% 75.7% 28.7% 36.9% 39.7% 39.3% 41.1% 40.2% 34.8% 232 250 275 304 352 399 441 146.6 261.7 388.7 494.3 636.5 742.0 622.1 37.0% 37.5% 36.9% 38.0% 38.5% 39.0% 38.0% 15.4% 19.8% 22.7% 23.4% 24.4% 23.3% 19.3% 287.0 523.7 443.6 632.7 1332.2 934.8 936.7 3.5 3.4 3.3 3.1 2.9 2.6 25.1 426.9 782.3 1032.8 1188.7 1910.4 1515.8 1696.0 34.1% 33.3% 37.5% 41.5% 33.3% 48.9% 36.2% 34.3% 33.5% 37.6% 41.6% 33.3% 49.0% 36.7% 34.3% 33.5% 37.6% 41.6% 33.3% 49.0% 36.7% --------
1.1%
estimates
1.3%
3607.6 4158.5 76.5% 75.7% 35.4% 34.4% 462 488 734.9 880.8 36.2% 32.3% 20.4% 21.2% 773.6 859.4 24.2 23.4 1505.3 1612.6 48.1% 53.9% 48.8% 54.6% 42.6% 43.6% 13% 20%
4800 75.5% 34.0% 525 1015 33.0% 21.1% 900 20.0 1700 59.0% 59.5% 42.0% 29%
5450 75.5% 34.5% 560 1160 34.0% 21.5% 1275 Nil 2125 54.5% 54.5% 37.0% 33%
Avg Ann’l Div’d Yield Sales ($mill) A Gross Margin Operating Margin Number of Stores C Net Profit ($mill) Income Tax Rate Net Profit Margin Working Cap’l ($mill) Long-Term Debt ($mill) Shr. Equity ($mill) Return on Total Cap’l Return on Shr. Equity Retained to Com Eq All Div’ds to Net Prof
1.8% 7225 76.0% 35.0% 700 1525 37.0% 21.1% 2350 Nil 3375 45.0% 45.0% 29.5% 35%
BUSINESS: Coach, Inc. is a designer, producer, and marketer of high-quality modern American classic accessories. Primary product offerings include handbags, women’s and men’s accessories, business cases, luggage, leather outerwear, gloves, scarves, and personal planning products. Also licenses watches, footwear, and home and office furniture. Operates 497 North American stores (in-
cluding 152 factory outlets). Direct-to-consumer channel accounted for nearly 87% of total net sales in fiscal 2011; Indirect channel, (13%). Acquired remaining 50% interest in Coach Japan, 7/05. Off./dir. own 2.4% of common shares (10/11 Proxy). Chairman and CEO: Lew Frankfort. Inc.: MD. Add.: 516 W. 34th St., New York, NY, 10001. Tel.: 212-594-1850. Internet: www.coach.com.
Coach continues to impress despite a still tough operating environment. The company reported a 24% share-net advance in the third quarter (fiscal year ends June 30th), in spite of weak global economies and lofty input costs. Although share repurchases padded EPS growth, the real catalyst remained momentum at the top line, a testament to many of management’s earlier initiatives. The decision to lower price points on certain lines in an attempt to keep registers ringing at traditional stores looks to have been the right move, aiding sales and reducing discounts. We have bumped up already healthy fiscal fourth-quarter top- and bottomline estimates. Domestic sales ought to continue benefiting from the repositioning of Coach’s women’s lines, but will likely also get a significant boost from the expansion of its men’s offerings. Men are undoubtedly becoming more fashion conscious, a trend that the rollout of men’s stores should profit from. Coach has already introduced dual-gender stores in China, and believes that the men’s business could top $400 million this year and eventually become a $1 billion operation.
These investments come at a cost, and will likely weigh on margins, but should help Coach achieve 25% share-net and 16% sales growth in the June period. Our fiscal 2013 estimates assume continued success on the global stage. Management has successfully developed its brand in Japan, and is now implementing a similar strategy in China. China represents tremendous opportunity, given its vast population and love for Western goods. The country’s low labor costs also promise higher margins. Plus, Coach is also testing the European market, opening its second flagship store in London. Expansion into these areas ought to make 15% share-net growth feasible next year. Yet, the stock appears a tad too pricey, in our eyes. It has continued to gain momentum since our February report (COH is up about 25% over the past 52 weeks), discounting a fair portion of the gains we envision out to 2015-2017. Investors should note, though, the company’s strong finances and recent willingness to reward shareholders. The quarterly dividend to be paid in July was raised 33%. Andre J. Costanza May 4, 2012
beginning 2006. Excludes $0.12 of nonrecurring items in ’08. Next egs. report late July. May not add due to rounding. (C) Store count only reflects North American retail and
factory stores. Excludes all other locations. (D) In mill., adj. for splits. (E) Initial dividend paid on 6/29/09. Typically paid in early January, April, July, and October.
© 2012, Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.
1
Company’s Financial Strength Stock’s Price Stability Price Growth Persistence Earnings Predictability
A 50 90 90
To subscribe call 1-800-833-0046.
© 2012, Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.
Adding Judgment Series - COH Research
May 4, 2012
RETAIL (HARDLINES) INDUSTRY
The Retail (Special Lines) Industry has been divided into two separate segments, Hardlines and Softlines. The Hardlines category, reviewed here, covers non-apparel specialty retailers, encompassing stocks related to housewares, automotives, electronics, health & wellness, and sporting goods, while Softlines consists of all apparelrelated companies. Coverage of Softline stocks can be found elsewhere in issue 11. Stocks in the retail sector surged during the first quarter of 2012, slightly outperforming the broader market averages. While the Dow and S&P achieved growth of 8% and 10% during the period, respectively, marking the largest first-quarter gains seen since the late-90s, retail stocks managed to outshine, posting growth of 12%. In our view, much of the recent success can be attributed to initiatives put into place in 2011, including the right-sizing of inventories and the enhancement of efficiencies through greater use of technology. With the economy on an uneven path, management at several prominent retailers made these initiatives a key focus during the course of last year in an attempt to ensure longer-term stability. In our view, the progress made on these fronts in 2011 appears to be paving the way for a strong bounce-back year for the retail sector in 2012. Thus far, first-quarter earnings reports have been largely positive. In the following report, we preview first-quarter earnings within the Hardline group and discuss recent U.S. retail trends.
2165
INDUSTRY TIMELINESS:
35 (of 98)
favorable March-period results. The nation’s most talked about car-sharing network narrowed its share loss in the quarter, from $0.16 a share in 2011 to $0.08 in 2012. Improvement stemmed from membership growth of 23%, as the company added more than 709,000 ‘‘Zipsters’’ to its roster. Total revenue increased 20%, to $59.1 million. Based on our projections, Zipcar is poised for a push to profitability in 2012. March Retail Figures Retail figures showed nice resilience in March, with sales increasing 0.8% versus the 0.9% gain in February. The output easily surpassed economists’ expectations of 0.3% and may well prompt them to raise their consumer spending forecasts moving forward. Based on the March report, Americans appear to be doing a good job shrugging off elevated gas prices, thanks largely to a mild winter that led to reduced consumer heating bills. Motor vehicles sales increased 0.9% during the period, after increasing 1.3% in February. Favorable comps in this sector stemmed from pent-up household demand and the devastating earthquake that halted manufacturing in Japan last year. Besides autos, growth was relatively broad-based, with gas receipts increasing 1.1%, furniture (+1.1%), electronics and appliances (+1.0%) clothing (+0.9%), sporting goods (+0.5%), and restaurants (+0.3%). In our view, the positive performance is a possible indicator that the economy is moving in the right direction and putting many of the headwinds that plagued it last year in its rearview mirror.
First-Quarter Earnings Conclusion Looking at the retail industry’s strong equity performance of late, it would appear that the investment community was expecting big things out of the sector in the March period. Although several high-profile hardliners are still yet to report, those who have, have not disappointed. Leading vitamin and supplement retailer, GNC Holdings, reported stellar first-quarter results highlighted by a 23% year-over-year increase in revenues. Furthermore, same-store sales rose 15.8%, marking the 27th consecutive quarter of comp growth. Looking at the car rental segment, the larger players like Avis Budget Group, and Hertz Global are still yet to report, but the new kid on the block, Zipcar, turned in
In regard to Timeliness, the Retail (Hardlines) Industry currently ranks just outside the top third of sectors under our coverage. With the economy showing surprising strength in the fourth quarter of 2011, many were skeptical if such growth would be sustainable in the first quarter of 2012. Based on recent retail figures and strong March period earnings, these concerns appear to be quickly fading. The year-ahead consumer outlook has brightened considerably in recent months and has led several retailers to raise their earnings projections for 2012 and 2013. Michael Ratty
Composite Statistics: Retail (Hardlines) Industry
Retail (Hardlines) 2008 2009 2010 2011 2012 2013 134304 138456 147204 158000 175000 200000 35.1% 34.0% 35.1% 35.5% 36.0% 36.0% 10.4% 10.2% 11.3% 11.5% 11.5% 12.0% 26979 26243 27304 28000 29000 30000 3166.1 4347.1 6154.0 6700 7200 7800 44.9% 38.2% 35.7% 35.0% 35.0% 35.0% 2.4% 3.1% 4.2% 4.2% 4.1% 3.9% 13228 17148 20761 20000 21000 23000 23285 23567 23620 23000 22000 20000 27724 33976 36247 43000 48000 54000 7.8% 8.9% 11.6% 10.5% 10.0% 10.0% 11.4% 12.8% 17.0% 15.5% 15.0% 14.5% 8.3% 10.7% 14.5% 13.0% 13.0% 12.5% 28% 17% 15% 14% 13% 13% 25.7 16.8 14.9 15.0 Bold figures are 1.55 1.12 1.05 .95 Value Line estimates 1.1% 1.0% 1.0% 1.0%
Sales ($mill) Gross Margin Operating Margin Number of Stores Net Profit ($mill) Income Tax Rate Net Profit Margin Working Cap’l ($mill) Long-Term Debt ($mill) Shr. Equity ($mill) Return on Total Cap’l Return on Shr. Equity Retained to Com Eq All Div’ds to Net Prof Avg Ann’l P/E Ratio Relative P/E Ratio Avg Ann’l Div’d Yield
15-17 260000 37.5% 12.5% 32000 9000 35.0% 3.5% 25000 20000 68000 10.5% 13.5% 12.0% 15% 18.0 1.20 1.0%
RELATIVE STRENGTH (Ratio of Industry to Value Line Comp.) 5 00 4 00 3 00
2 00
1 00
200 6
20 07
200 8
200 9
201 0
20 11
20 12
Index: June, 1967 = 100
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.
2
To subscribe call 1-800-833-0046.
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Sell 97.65 USD
Fair Value 63.00 USD
Consider Buy 37.80 USD
|
QQQ Uncertainty High
TM
Economic Moat Narrow
Stewardship .
Coach has lower price points but higher operating margins than European luxury goods makers. by Paul Swinand Stock Analyst Analysts covering this company do not own its stock. Pricing data through May 14, 2012. Rating updated as of May 14, 2012. Currency amounts expressed with "$" are in U.S. dollars (USD) unless otherwise denoted.
Stock Price 73.0 53.0 43.0 33.0 23.0
13.0 08
09
10
11
12
?
Thesis Apr. 27, 2012
With such historically strong financial metrics, investors may worry how sustainable Coach’s record is. Fashion-driven companies can often seem like high-return companies when products and styles are popular, and fade quickly when tastes and preferences change. In our view, Coach has developed a narrow economic moat through a brand that commands pricing power, sourcing and distribution advantages, and attention on capital efficiency. We believe these competitive advantages are sustainable over our explicit forecast period, resulting in excess economic profits.
Morningstar Credit Rating Industry Luxury Goods
.
stores in Japan, and should soon reach 100 stores in China. In the domestic market, roughly one third of the stores are factory outlets, which have a different customer mix and do a greater proportion of men’s and tourist business. Coach has been improving its men’s business domestically, and, although we believe it will always be smaller than women’s, we believe there is some upside in this category. The men’s business is also potentially bigger in China and Asia compared to western economies, as men in Asia give leather goods as gifts and tend to have more personal leather accessories compared to Coach’s home markets; and we believe men’s growth could show some upside from current trends.
Coach has created sourcing and distribution advantages that contribute to our view of the sustainability of its competitive advantages. Recent hard work on sourcing due to cost pressures lengthens that advantage, in our view. Although some aspects such as quality control are process advantages that can be copied in the medium term, others, such as being one of the largest high-quality leather buyers on the planet, are more structural.
Coach’s international business is still underdeveloped and represents an opportunity if growth and margins continue on current trajectories. Many investors assume that Coach is too wed to the fortunes of the American consumer, but if the long-run success in Japan is taken as a guide, there is plenty of room for Coach to take share from European leather and accessories makers in other markets. In Japan, Coach has had flat to low single-digit growth rates for the past 10 years while other competitors generally have experienced declines. The company only just entered Europe last year through department store boutique partnerships. Again, many investors assume Coach will never compete with European bag makers, but it is our belief that there is room for new brands offering unique styles, makes, and price points. In China, Coach lags other luxury brands with respect to sales, but also has greater growth potential. The company doubled the business in 2010 to over $100 million and projects that by 2012 it will reach $300 million, and in 2014 it will attain $500 million in sales. Coach could also see higher operating margins in China as it expands due to lower operating costs. Similar estimates can be made for Europe, where Coach has just a small number of boutiques being tested in department stores. We estimate that the company could attain $500 million in sales in Europe over our forecast period.
The current distribution footprint is still relatively small, and can be expanded without diluting the brand. Coach has more than 500 stores in the U.S., fewer than 200
Investors seem quick to punish Coach for any dip in margins or in average price points, pointing out that the brand is "aspirational" for consumers that can’t afford the
Even during the challenges of the recession, Coach’s fundamentals were excellent, with three-year historical operating margins above 30% and returns on capital around 40%. Free cash flow generation has been also quite high, historically greater than 20% of revenue. Management’s attention on capital efficiency and strong brand loyalty have been the key drivers of Coach’s strong financial results. We judge brand to be more important than other softgoods categories--in bags and leather accessories, consumers tend to be more brand loyal, repurchasing the same brand of bag or matching the bag with accessories purchases. We liken this brand loyalty to be part fit, part style, and part product performance.
3
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Buy 37.80 USD
Consider Sell 97.65 USD
Currency(Mil)
Market Cap
Fair Value 63.00 USD
Close Competitors Coach, Inc.
|
QQQ Uncertainty High
TM
Economic Moat Narrow
TTM Sales
Oper Income
Stewardship .
Net Income
USD
19,297
4,640
1,472
990
LVMH Moet Hennessy Louis Vuitton SAUSD
.
79,390
4,548
2,468
Compagnie Financiere Richemont SA USD
3,537
879
300
227
.
.
.
.
HermŁs International
USD
Morningstar Credit Rating Industry Luxury Goods
.
Morningstar data as of May 14, 2012.
highest priced luxury brands. We agree that Coach products are aspirational, but also point out the resiliency of its operating results during the 2008-09 economic downturn. Coach did adjust price and product mix to represent more value to the consumer, which we think was a winning strategy despite the investor angst it created, and the sales rebound is proof that management did not dilute the brand. Coach has also showed more recently that it can raise average price points and deal with input costs fairly well. Our view is that the brand and distribution system that Coach has created is more bulletproof than a small change in price or mix would suggest, and we point to the still high margins and returns on capital, which we think will only improve during the next phases of recovery and expansion.
For fiscal 2012 (year ended June 2012), we project overall growth of nearly 16%, driven by high-single-digit comparable store sales growth in North America and around 14% square footage growth globally). We also anticipate gross margins holding an even performance, year over year, at 72.7% as the second half of 2012 improves. Some additional selling, general, and administrative spending will produce operating margins of 32.1% (compared with 31.4% in the fiscal year ended June 2011, and 32.2% expected for June 2013). Over the next five years, we model annual average revenue growth around 12%. We expect net store openings to grow to 90 next year and to average 75 over the next five years, before fading to 45 at the end of our 10-year forecast period. We expect Coach to surpass $500 million in sales in China in 2014, faster than we previously expected, and 9% wholesale growth for five years based on European and new market development. Our five-year assumptions also include operating margins averaging over 32%. We project cash flows as a percentage of revenue to remain in the 20% range, dipping slightly below that in years five through 10, even with growth initiatives, dividends, and share buybacks.
Valuation, Growth and Profitability
We are increasing our fair value estimate to $63 per share from $60 based on the time value of money. Gross margins are now over 72%, given that cost pressures should subside as the calendar year continues, and currently we are modeling roughly 20 basis points of gross margin improvement, year over year, in fiscal 2013. Our updated fair value estimate implies 18 times fiscal 2012 earnings per share and 15 times fiscal 2013 earnings. On an enterprise value/EBITDA basis, our valuation implies 11 times fiscal 2012 and 9 times fiscal 2013. On a cash flow yield basis, our fair value suggests approximately 6% yield in fiscal 2013, in line with a five-year historical range of 4%-6%.
Risk
Remaining fashionable and extending the brand are constant risks at Coach. If Coach extends the brand beyond what consumers understand it to be, the company could damage its core business. For example, Coach has produced some leather footwear and is also experimenting with some men’s stores. Footwear does leverage some competitive advantages in leather sourcing, but in our opinion is an entirely different category than bags and accessories. Men’s accessories have lower risk, in our opinion, but we cannot be sure that the extension will not dilute the women’s business.
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
4
®
ß
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Sell 97.65 USD
Fair Value 63.00 USD
Consider Buy 37.80 USD
|
QQQ Uncertainty High
TM
Economic Moat Narrow
Stewardship .
While Coach has established a niche in the fashion world, and customers are very brand-loyal in the handbag and accessories category, Coach runs the risk that changes in tastes and preferences will eventually lead to consumers turning elsewhere. Coach also has been successful thus far extending the brand into new geographies, and a portion of our fair value is based on that continued expansion. Today, sales growth prospects appear strong, but there is a risk that new entrants or other market forces could derail the international projects that today look promising for Coach.
Bulls Say
Coach’s history, high-end positioning, and brand loyalty to its products give it the ability to price at levels above lesser brands but where consumers still see value. Its position is hard to copy and has led to high returns on capital. Coach’s success abroad has only just begun, with growth and share gains to be had in China and other developing markets where the revenue base is small but growing. Coach has also just taken its first steps into Europe. The company’s success in Japan proves it can compete effectively with European leather goods makers and gain share. With operating margins in the 30% range, Coach ranks as one of the best cash-generating consumer companies an investor can find. Coach continues to drive demand through its innovation in styles, colors, and materials. The company does extensive primary market research and picks attractive competitive spaces where it knows it can compete. Coach has been underestimated because it has focused efforts on the domestic market. New markets such as China and men’s accessories in Asia offer unexplored opportunities.
Morningstar Credit Rating Industry Luxury Goods
.
Bears Say
Since Coach’s prices are lower, its customers tend to be more aspirational and thus more sensitive to the economy in general. Coach’s growth strategy relies heavily on strong international markets, particularly Japan and China. Any change in demand or the inability to follow fashion trends there would affect Coach’s earnings and future growth forecasts. Coach continues to extend into new product areas such as shoes and men’s accessories. This could eventually dilute the core business or distract management attention. Coach appears to have incredible brand loyalty, but new entrants will eventually replace it as a midprice aspirational brand, as fashion brands don’t last forever. Coach will always trail its European leather goods competitors, particularly in fast-growing Asian markets where consumers want only the number one brand and Coach has poor name recognition.
Financial Overview
Financial Health: With little debt on the balance sheet and its ability to turn roughly 20% of sales into free cash flow, Coach is in excellent financial health and well-positioned to fund growth. Coach has also increased its dividend to $0.90 per share and is in good shape to continue to raise dividends through existing and growing operating cash flows.
Company Overview
Profile: Coach is a manufacturer, distributor, and retailer focused on handbags and leather accessories in an assortment of styles. Its products offer the quality of higher luxury brands but at more attractive price points. Although about 60% of sales come from its more than 345
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
5
®
ß
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Sell 97.65 USD
Fair Value 63.00 USD
Consider Buy 37.80 USD
|
QQQ Uncertainty High
TM
Economic Moat Narrow
Stewardship .
Morningstar Credit Rating Industry Luxury Goods
.
North American retail stores and more than 120 outlet stores, Coach also sells its products through department stores, international shops, the Internet, its catalog, and Coach stores in Japan and China. Coach recently opened European distribution through department stores. Management: Lew Frankfort has served as chairman and CEO since 1995 and helped lead the firm through its initial public offering in October 2000. He has more than 25 years of experience at Coach. In recent years, he has revitalized the Coach brand and assembled a top-notch management team to lead this effort. In 2011, his total compensation was $12 million, down by $1 million, due to a lower stock grant and nonequity incentive compensation. Although Frankfort’s compensation is generous, particularly in terms of equity compensation, we think his 1.7% stake in the company helps align his interests with those of other shareholders. President and executive creative director Reed Krakoff’s total compensation of $21 million in 2011 does strike us as excessive despite his unquestionable contribution to the company’s success. He owns less than 1% of the shares outstanding, and we would prefer to see him have a greater equity stake in the company. A majority of Coach’s board is independent, and officers and directors own nearly 5% of the shares outstanding. Although we would prefer to see the roles of chairman and CEO split, we like that the company has appointed a lead director who can challenge the CEO if necessary. We believe management does a good job of providing transparency around the business. Overall, corporate governance is good, in our opinion, and we rate Coach’s stewardship of shareholder capital as exemplary given its long record of above average returns and recent actions to return cash to shareholders.
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
6
®
ß
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Sell 97.65 USD
Fair Value 63.00 USD
Consider Buy 37.80 USD
|
QQQ Uncertainty High
TM
Economic Moat Narrow
Stewardship .
Morningstar Credit Rating Industry Luxury Goods
.
Analyst Notes Apr. 26, 2012
Coach Delivers Solid Growth and Earnings Leverage: Couponing Strategy Withdrawal Suggests Strength
Coach announced fiscal third-quarter earnings for the period ended in March. Results were mildly above both our own and market expectations, with sales rising 17% to $1.1 billion, and earnings per share rising to $0.77, or 24%. North American same-store sales rose 6.7%, representing the fifth consecutive decline since fiscal second quarter 2011, when the company produced a same-store sales increase of 12.6%. By comparison in the last quarter, North American same-store sales were up 8.8%, but management believes its decision to eliminate coupons was a reason for the softer sequential comparable-store sales in this quarter versus the trailing quarters. The decision to reduce promotions contributed to strong gross margins that advanced a strong 100 basis points to 73.8%. While Coach still trades above our $60 fair value estimate, we are actually encouraged by the coupon elimination strategy. Coupons and similar promotions are most effective when targeted at price-sensitive customers, and also historically have been used to build both customer trial and store traffic in most marketing campaigns. We believe this is a signal that the more aspirational customer may be returning to outlets and increasing purchases, without the offer of a discount. Longer term, discounts can damage the brand, and we also believe this is a sign that inventory is in decent shape (up 21%, including the absorption of a distributor and 10% store growth). We underline that Coach is the highest-operating margin stock we cover (we’re projecting more than 32% for the next two years), and also one of the highest returns on capital businesses in our coverage. Thus is it little surprise the company is buying back shares to produce about 2% leverage on earnings per share, and increasing its dividend to an annual $1.20. Given the quality of the company and the universal strength in luxury, Coach shares are trading at a premium to our $60 fair value estimate, which will move
up at the cost of capital. At a current price of 20 times fiscal year 2012 earnings (period ending June), and 17 times fiscal 2013 earnings, this stock is not terribly expensive given its double-digit growth trajectory and attention to stock buybacks, both of which contribute to earnings growth in the 20% plus range. And while we also like the potential growth trajectory in Europe and China, we’d also point out that some of the European luxury names, such as LVMH, have become relatively cheaper because of Europe macro worries. By comparison, LVMH is trading within just a few percentage points of our fair value estimate, and trades at a price earnings of 17 times December 2012 earnings. Recent store visits we’ve made at Coach suggest strong traffic at both full-price stores and outlets, and we also believe Coach benefits more from "average" travelers and less from "ultra luxury" Chinese travelers. This trait should make it more resilient in the scenario of a China slowdown, in addition to the value position of its brand and its relatively smaller and younger store base in China. New product launches scheduled for this summer, including a "dual gender" collection called "Legacy," and 58 additional men’s collection full-price store presentations are also brand builders and should drive positive comparable-store sales, in our opinion. On the gross margin side, we believe our projection of mild leverage from sourcing initiatives and hard work reducing taxes and duties on materials and shipments could prove conservative, and could also continue to play out over a number of years. Coach’s relatively high operating margin of more than 32% has run as high as 38% and 36% in the fiscal years ended June 2007 and June 2008, when gross margins were around 77%. While SG&A has been controlled and is near historical lows, we believe gross margins gains can still be had longer term. We also believe the hard work on margins should positively influence competitive advantages in
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
7
®
ß
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Sell 97.65 USD
Fair Value 63.00 USD
Consider Buy 37.80 USD
|
QQQ Uncertainty High
TM
Economic Moat Narrow
Stewardship .
Morningstar Credit Rating Industry Luxury Goods
.
Analyst Notes (continued) sourcing and quality control, which we view as equally important to Coach’s narrow-moat rating as fashion and brand experience. The latter two are necessities; but other brands can do the same. Sourcing and quality are inherently Jan. 26, 2012
harder to do, and recent volatility in labor and commodity costs have, in our opinion, increased the complexity and defendability of the sourcing process.
Coach Reports Strong December Ending Fiscal 2Q: Increasing Fair Value
On Tuesday Coach reported very good operating results for its fiscal second quarter. The December-ending quarter includes the all-important holiday season, and it was encouraging that no slowdown materialized, as some investors may have feared. Revenue rose 15% year over year and earnings increased 18% to $1.18 per share. Both were in line with our internal model but mildly ahead of average analyst estimates. A favorable tax adjustment of $0.04 was excluded from our numbers, but will also have an impact on future quarters and our fair value estimate. The broad and solid results were particularly encouraging given that Tiffany and Burberry (not covered) both called out slowing December sales in the United States, where the bulk of Coach sales are generated. More important to our valuation, the company is anticipating stronger growth in fiscal 2013 (June ending), as retail square footage will grow at a higher (above double-digit) rate, online sales growth will continue, Asian sales remain strong and are growing, and as the company experiences success of its men’s concepts. The company believes (and we agree) its budding men’s business has the potential to be a new market in which Coach is a leader. We are increasing our fair value estimate based on the steadily improving operating statistics including taxes, the potential of the men’s business and the time value of money.
still up double digits, and management now expects a slight acceleration in openings in China to 30 for the fiscal year, or 15 in the remaining six months before the June 30 year end. We highlight that Coach is still small and not the top brand in China, but its value proposition may play well as the economy slows from hyper growth to a more sustainable trajectory. In contrast, Tiffany, also strong in China, grew only 12% in the same quarter in its Asia segment that includes China. In Japan, a country that seems to perpetually deliver little to no growth for most companies we cover, sales were flat in on a constant currency basis, but up 6% with the strong yen. More importantly, Coach sees double digit store growth in the next year compared to 3% growth in fiscal 2011, and an above average opportunity for the men’s business. The company opened four men’s shops in the quarter and the increase in future growth is almost entirely due to the men’s business. Indirect sales in the quarter were flat, partly driven by flat sales at department stores in the United States, but management believes some sales shifted into the next quarter in Asia because of timing differences of a few large shipments. We also call out that the flat sales in the domestic department store channel are not too disappointing, given the mixed economic picture in the domestic market.
In the quarter, direct to consumer sales, including Internet and owned retail, increased 17% year over year. The result includes the acquisition of the Singapore concession in Asia (completed last summer). China comparable stores are not disclosed, but management commented that sales are
Profitability and cash flow were again strong for Coach, which is one of our most profitable and consistent performers, even for a luxury company. Operating margins are back around 32%, and we believe they could go higher in the next 12 months as input costs moderate while SG&A
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
8
®
ß
Adding Judgment Series - COH Research
Coach, Inc. COH
[NYSE]
Last Price 67.15 USD
Consider Sell 97.65 USD
Fair Value 63.00 USD
Consider Buy 37.80 USD
|
QQQ Uncertainty High
TM
Economic Moat Narrow
Stewardship .
Morningstar Credit Rating Industry Luxury Goods
.
Analyst Notes (continued) continues to leverage on higher sales. Stock buybacks have been a little ahead of our model but cash is still building as working capital is well controlled, with inventory growing only at the sales increase rate. Cash generation quality and working capital control are an interesting contrast to other brands we cover that are growing inventory ahead of sales. Cash now stands at nearly $1.1 billion, versus $0.7 billion last year and $0.9 billion at the June fiscal year end. Looking ahead, we are excited by the men’s business, both domestically and in Asia. We also note that in Europe, where Coach is still just scratching the surface of a potential multibillion market, we believe Coach may be in a position to replicate the success it has had in Japan and deliver growth in a tough economy due to its consumer value proposition. We repeat that the Coach price value equation of its products and shopping experience, has allowed it to more than double its market share in Japan,
and its products are different enough from other European leather goods makers that we believe there is room for this new competitor. In addition, we put weight on the company’s assessment of its men’s business potential, as Coach’s heritage is from a consumer products approach, and very research driven. We believe management is basing its bullish stance on men’s following an analysis of the stores it’s been testing in a wide range of geographies and combinations. While we don’t see the men’s business as a parallel to the women’s bag business, we believe in Coach’s marketing prowess, and believe that the company can occupy a position in the market place that will uniquely connect with men and with women shopping for men’s gifts. We also now believe that the stand-alone concepts are the proper way to initiate this strategy because of the difference in men’s shopping habits.
Disclaimers & Disclosures No Morningstar employees are officers or directors of this company. Morningstar Inc. does not own more than 1% of the shares of this company. Analysts covering this company do not own its stock. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security.
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
9
®
ß
Adding Judgment Series - COH Research
Morningstar ® Stock Data Sheet
Pricing data thru May 14, 2012
Coach, Inc. COH Coach is a manufacturer, distributor, and retailer focused on handbags and leather accessories in an assortment of styles. Its products offer the quality of higher luxury brands but at more attractive price points. Although about 60% of sales come from its more than 345 North American retail stores and more than 120 outlet stores, Coach also sells its products through department stores, international shops, the Internet, its catalog, and Coach stores in Japan and China. Coach recently opened European distribution through department stores.
Morningstar Rating
Last Price
67.15
QQQ 8.93 4.33
20.27 7.26
2:1
28.85 16.95
36.84 24.51
2:1
Rating updated as of May 14, 2012
Fiscal year-end: June
Sales USD Mil Mkt Cap USD Mil Industry
Sector
4,640
19,297
Consumer Cyclical
Fair Value
Uncertainty
63.00
44.99 25.18
54.00 29.22
Luxury Goods Economic Moat
High
37.64 13.19
37.36 11.41
TM
Stewardship Grade
Narrow 58.55 32.96
69.20 45.70
. per share prices in USD 79.70 59.74
Annual Price High Low Recent Splits
2:1
Price Volatility 79.0 39.0 19.0
4.0
516 West 34th Street New York, NY 10001 Phone: 1 212 594-1850Website: http://www.coach.com
Monthly High/Low Rel Strength to S&P 500 52 week High/Low 79.70 - 45.70 10 Year High/Low 79.70 - 4.33
1.0
Bear-Market Rank 4 (10=worst)
6.0
Trading Volume Million
3.0
Growth Rates Compound Annual Grade: B
Revenue % Operating Income % Earnings/Share % Dividends % Book Value/Share % Stock Total Return % +/- Industry +/- Market
2007
2008
2009
2010
2011
YTD
Stock Performance
28.9 15.3 5.5 . 15787
-28.8 -32.3 -5.8 . 11258
-32.1 6.4 14.4 . 6790
77.0 53.6 -10.7 0.6 11470
52.9 40.1 -0.4 0.9 16393
11.9 11.9 0.4 1.4 17813
10.4 2.8 -0.4 1.3 19297
Total Return % +/- Market +/- Industry Dividend Yield % Market Cap USD Mil
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
TTM
Financials
719 67.2 134 18.6
953 71.1 244 25.6
1321 74.9 444 33.6
1710 76.6 622 36.4
2112 77.6 765 36.2
2612 77.4 993 38.0
3181 75.7 1147 36.1
3230 71.9 972 30.1
3608 73.0 1150 31.9
4159 72.7 1305 31.4
4640 72.6 1472 31.7
Revenue USD Mil Gross Margin % Oper Income USD Mil Operating Margin %
881
990
Net Income USD Mil
2.92 0.68 302 6.40
3.35 0.90 296 6.75
Earnings Per Share USD Dividends USD Shares Mil Book Value Per Share USD
1033 -148 886
1160 -168 991
Oper Cash Flow USD Mil Cap Spending USD Mil Free Cash Flow USD Mil
2010
2011
TTM
Profitability
29.2 45.9 20.4 1.43 1.6
34.5 56.5 21.2 1.63 1.6
34.7 53.8 21.3 1.63 1.5
Return on Assets % Return on Equity % Net Margin % Asset Turnover Financial Leverage
2009
2010
2011
03-12
Financial Health
937 25 1696 0.01
774 24 1505 0.02
859 23 1613 0.01
1136 23 1939 0.01
Working Capital USD Mil Long-Term Debt USD Mil Total Equity USD Mil Debt/Equity
2008
2009
2010
2011
TTM
Valuation
9.5 . 2.2 4.6 9.5
18.3 . 3.5 6.2 10.9
20.1 . 4.3 9.4 17.4
19.1 1.1 4.1 9.5 14.3
20.1 1.4 4.3 9.9 17.1
Price/Earnings P/E vs. Market Price/Sales Price/Book Price/Cash Flow
15.3 13.4 25.3 80.0 10.2 13.4 -1.1 12.6
9.3 4.4 10.4 . 8.0 43.7 -1.7 29.5
14.5 11.3 18.1 . 12.6 7.8 2.1 9.9
21.0 29.1 31.4 . 29.4 26.8 13.9 24.2
Current
5 Yr Avg
Ind
Mkt
86
147
262
389
494
664
783
623
735
25.0 22.7 14.2 9.3 7.8 7.6 1.4 16.8 . 1054.6
0.24 . 364 0.95
0.40 . 372 1.59
0.68 . 386 2.61
1.00 . 390 3.58
1.27 . 388 4.04
1.76 . 377 4.30
2.17 . 360 4.48
1.91 0.08 326 5.94
2.33 0.38 316 5.87
108 -43 65
222 -57 165
449 -68 381
544 -95 450
597 -134 463
779 -141 638
923 -175 749
809 -240 569
991 -81 910
2002
2003
2004
2005
2006
2007
2008
2009
24.6 42.0 11.9 2.06 1.7
27.7 42.7 15.4 1.80 1.5
31.8 43.3 19.8 1.60 1.3
32.7 42.8 22.7 1.44 1.3
33.2 44.5 23.4 1.42 1.4
32.6 42.8 25.4 1.28 1.3
33.2 45.7 24.6 1.35 1.5
25.8 38.8 19.3 1.34 1.5
2002
2003
2004
2005
2006
2007
2008
128 4 260 0.01
287 4 427 0.01
524 3 782 0.00
444 3 1033 0.00
633 3 1189 0.00
1332 3 1910 0.00
935 3 1516 0.00
2002
2003
2004
2005
2006
2007
26.6 . 3.6 8.7 19.8
36.0 . 6.4 11.9 24.1
33.7 . 7.2 10.8 20.4
27.8 . 6.7 9.3 21.5
28.3 . 6.9 10.7 23.0
16.1 . 3.9 7.1 13.3
72.6 31.7 21.3 21.4 .
46.0 31.1 7.0 2.6 314.6 * 74.2 33.5 22.2 22.4 .
55.8 8.3 11.8 9.4 .
40.0 16.8 11.3 0.1 9.5
06-11 USD Mil
03-12 USD Mil
Cash Inventories Receivables Current Assets
700 422 143 1452
930 475 169 1760
Fixed Assets Intangibles Total Assets
582 341 2635
603 365 2985
Payables Short-Term Debt Current Liabilities Long-Term Debt Total Liabilities
184 1 593 23 1023
107 1 623 23 1046
Total Equity
1613
1939
Valuation Analysis Price/Earnings Forward P/E Price/Cash Flow Price/Free Cash Flow Dividend Yield % Price/Book Price/Sales PEG Ratio
2006
18.2 15.2 11.6 . 12671
10 Yr
Financial Position Grade: A
2005
49.0 40.0 35.2 . 10655
5 Yr
Return on Equity % 53.8 Return on Assets % 34.7 Fixed Asset Turns 8.0 Inventory Turns 2.9 Revenue/Employee USD K 386.6 Gross Margin % Operating Margin % Net Margin % Free Cash Flow/Rev % R&D/Rev %
2004
129.9 103.5 39.9 . 7024
3 Yr
Profitability Analysis Grade: A
2003
68.9 92.3 77.6 . 2921
2002
1 Yr
Quarterly Results Current
5 Yr Avg
Ind
Mkt
20.1 16.2 17.1 20.0 1.3 9.9 4.3 1.0
16.6 . 13.1 15.8 . 7.4 3.6 .
18.8 . 16.9 23.6 1.1 4.5 2.2 .
14.4 13.4 6.7 17.5 2.0 1.9 1.1 1.7
Revenue USD Mil
Most Recent Period Prior Year Period Rev Growth %
Most Recent Period Prior Year Period Earnings Per Share USD
Most Recent Period Prior Year Period
Industry Peers by Market Cap Jun 11
Sep 11
Dec 11
Mar 12
1031.7 1050.4 1448.7 1109.0 950.5 911.7 1264.5 950.7 Jun 11
Sep 11
Dec 11
Mar 12
8.5 22.2
15.2 19.7
14.6 18.7
16.6 14.4
Jun 11
Sep 11
Dec 11
Mar 12
0.68 0.64
0.73 0.63
1.18 1.00
0.77 0.62
*3Yr Avg data is displayed in place of 5Yr Avg
Mkt Cap USD Mil Rev USD Mil
Coach, Inc. LVMH Moet Hennessy L Compagnie Financiere
19297 . 3537
P/E
ROE%
4640 20.1 79390 13.2 879 15.6
53.8 7.4 10.3
Major Fund Holders % of shares
. . . TTM data based on rolling quarterly data if available; otherwise most recent annual data shown.
© 2012 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
10
®
ß
Adding Judgment Series - COH Research Stock Report | May 19, 2012 | NYS Symbol: COH | COH is in the S&P 500
Coach Inc. S&P Recommendation STRONG BUY
★★★★★
Price $65.89 (as of May 18, 2012)
GICS Sector Consumer Discretionary Sub-Industry Apparel, Accessories & Luxury Goods
12-Mo. Target Price $85.00
Investment Style Large-Cap Growth
Summary COH designs, makes and markets fine accessories for women and men, including handbags, weekend and travel accessories, outerwear, footwear, and business cases.
Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $79.70– 45.70 Trailing 12-Month EPS $3.35 Trailing 12-Month P/E 19.7 $10K Invested 5 Yrs Ago $14,254
S&P Oper. EPS 2012E S&P Oper. EPS 2013E P/E on S&P Oper. EPS 2012E Common Shares Outstg. (M)
3.52 4.15 18.7 287.8
Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)
Price Performance
$18.961 1.82 $1.20 88
Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating
1.60 18 NA
Qualitative Risk Assessment
30-Week Mov. Avg.
10-Week Mov. Avg.
12-Mo. Target Price
Relative Strength
GAAP Earnings vs. Previous Year Up
Down
Volume Above Avg.
No Change
STARS
LOW
MEDIUM
HIGH
Below Avg.
Our risk assessment reflects our view of COH's strong brand equity and rising cash flow, offset by a highly competitive market amid retail consolidation.
80 60 40
20
Quantitative Evaluations S&P Quality Ranking
Vol.
D
Mil. 30 20 10 0
C
B-
B+ B
B+
A-
A
A+
66
Relative Strength Rank
MODERATE
36 LOWEST = 1
5
HIGHEST = 99
5
Revenue/Earnings Data
1 D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J
2009
2010
2011
2012 Options: ASE, CBOE, P, Ph
Analysis prepared by Equity Analyst Jason N. Asaeda on May 01, 2012, when the stock traded at $73.16. Highlights ➤
➤
➤
In FY 11 (Jun.), COH estimated the U.S. addressable market for women's accessories and handbags grew to 10%, to $9.3 billion; the company grew more rapidly, expanding its domestic market share. A re-emphasis on Coach Men's also doubled the business to about $200 million, and a focus on expanding Asian distribution increased COH's market share in China to 6%, or $185 million. We forecast sales of $4.79 billion in FY 12. The company intends to expand global retail square footage 13%, concentrating on China, where it projects sales of over $300 million, and on Coach Men's, which it sees exceeding $400 million in sales. We expect operating margins to widen to 32.3% in FY 12 from an adjusted 32.1% in FY 11, driven by sourcing initiatives, reduced discounting in factory stores, and SG&A expense leverage despite ongoing infrastructure investments. COH will also anniversary higher sourcing costs (mainly reflecting wage inflation in China) in the second half of FY 12. We project sales of $5.47 billion and an operating margin of 32.7% in FY 13. Assuming share repurchases, we see EPS of $3.52 in FY 12 and $4.15 in FY 13.
Investment Rationale/Risk ➤
➤
➤
We see favorable long-term sales and earnings prospects for COH, as much based on management's acumen as on strong brand dynamics. We view the company's core $198 and $298 price points, which we believe appeal to a broad range of shoppers spanning the high-end to value, and frequent in-flow of new products as competitive advantages. We see opportunity for COH's average unit retail to increase over the next few quarters, supported by firmer pricing in the factory channel and the launch of the dual-gender Legacy lifestyle collection this August. We also see a growing retail business in Asia and increasing brand awareness in Europe boding well for the company. Risks to our recommendation and target price include a sharp drop in consumer spending; sourcing, fashion and inventory risks; and international expansion difficulties. Given our positive company outlook, we believe the shares should trade at a premium to their 10-year historical forward P/E multiple of 18X. Our 12-month target price of $85 is 22X our calendar 2012 EPS estimate of $3.84, in line with COH's broad peer group of specialty apparel retailers and luxury brands.
Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2012 The McGraw-Hill Companies, Inc.
11
Revenue (Million $) 1Q 2Q 2012 1,050 1,449 2011 911.7 1,264 2010 761.4 1,065 2009 752.5 960.3 2008 676.7 978.0 2007 529.4 805.6
3Q 1,109 950.7 830.7 739.9 744.5 625.3
4Q -1,032 950.5 777.7 781.5 652.1
Year -4,159 3,608 3,230 3,181 2,612
Earnings Per Share ($) 2012 0.73 1.18 2011 0.63 1.00 2010 0.44 0.75 2009 0.44 0.67 2008 0.41 0.69 2007 0.31 0.57
0.77 0.62 0.50 0.36 0.46 0.39
E0.85 0.68 0.64 0.46 0.62 0.42
E3.52 2.92 2.33 1.91 2.17 1.69
Fiscal year ended Jun. 30. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.
Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)
Date Decl.
Ex-Div. Date
Stk. of Record
Payment Date
0.225 0.225 0.225 0.300
08/17 11/17 02/16 05/15
09/01 12/01 03/07 05/31
09/06 12/05 03/09 06/04
10/03/11 01/03/12 04/02/12 07/02/12
Dividends have been paid since 2009. Source: Company reports.
Adding Judgment Series - COH Research Stock Report | May 19, 2012 | NYS Symbol: COH
Coach Inc. Business Summary May 01, 2012
Corporate Information
CORPORATE OVERVIEW. Coach is a leading U.S. designer and marketer of high-quality accessories. Founded in 1941, COH has over the past several years transformed the Coach brand, building on its popular core categories by introducing new products in a broader array of materials, styles and categories. The company has also implemented a flexible sourcing and manufacturing model, which it believes enables it to bring a broader range of products to market more rapidly and efficiently. MARKET PROFILE. Coach is the number one luxury accessories brand in the U.S., with an estimated 20% share of this estimated $9.3 billion market ($100+ handbags). In FY 11 (Jun.), the category grew an estimated 10% (up from an estimated 3%-5% pace in FY 10), which COH easily outpaced with its 17% gain in its own stores. This sub-segment of the handbag/accessories market remains one of the best-performing categories at retail. COH has been able to outpace industry growth as it executed its multi-channel growth strategy, and we believe COH has an estimated 20%+ U.S. handbag market share entering FY 12. The Japanese consumer makes up about 40% of the global luxury handbag market; COH estimates it holds 16% of the domestic Japanese market, and aims to leverage its brand there by entering the men's small leather goods market. Developing markets represent the next leg of growth, supporting a global market projected at $24 billion in 2011. With a total of 66 locations in Greater China, COH currently holds an estimated 6% share of that market. PRIMARY BUSINESS DYNAMICS. COH sells its products through direct-to-consumer and indirect channels, with the former accounting for 87% of total sales in FY 11 and FY 10, up from 84% in FY 09 and 55% in FY 05 via store expansion and comp-store sales gains. As of July 2, 2011, direct-to-consumer channels included the Internet, direct mail catalogs, 345 North American retail stores, 142 North American factory stores, and 176 department store shop-in-shops, retail stores and factory stores in Japan. Indirect channels include an estimated 900 U.S. department store locations and 140 international department store, retail store and duty-free shop locations in 18 countries. In FY 11, the operating margin of the direct-to-consumer business segment was 39%, or $1.42 billion, and compared to a 39% operating margin, or $1.25 billion, in FY 10, and was posted in tandem with a North American comparable-store sales gain of 10.6% in FY 11, versus a 3.5% increase in FY 10. Indirect, which includes the very profitable royalties earned on licensed products, achieved a segment operating profit margin of 55%, or $296 million, in FY 11, compared to 57%, or $257 million, in FY 10. Licensing revenues were $24.7 million in FY 11 and $19.2 million in FY 10. COH is pursuing two key strategies to strengthen its leadership position and build lasting market share: increasing global distribution, emphasizing its North American and China direct retail distribution; and improving productivity. Its five key initiatives are: (1) build share of North American women's accessories market via continuous product innovation and improvement; (2) grow North American retail locations ultimately bringing the total to over 500 locations including 30 in Canada; (3) build share of North American and Japanese men's market; (4) raise brand awareness and build market share of emerging markets; and, (5) expand share with Japanese customer where COH is implementing a multi-channel model similar to that of the U.S. and believes Japan can support at least 180 locations. COH has an estimated 14% of the Japanese better handbag market. Handbags accounted for about 63% of FY 11 sales, women's and men's accessories 27%, and the remaining 10% consisted of all other, including watches, footwear, jewelry, wearables, sunwear, business cases, travel bags and fragrances. FINANCIAL TRENDS. In the five years through FY 11, COH posted a revenue compound annual growth rate (CAGR) of 15%, a gross profit CAGR of 14%, an EBIT CAGR of 13%, and an income from continuing operations CAGR of 14%. Total assets rose at a five-year CAGR of 10%. Capital expenditures were $148 million in FY 11, up from $80 million in FY 10, and for FY 12 COH estimates a $200 million capital budget, supporting global store expansion and investments in technology. COH's returns on assets, capital and equity exhibited substantial improvement in FY 10, posting gains of 340 bps to 680 bps. FY 11 returns were 32% for ROA, 52% for ROC, and 57% for ROE, and were at the top of the peer group. We expect COH to maintain industry leading financial and operational metrics, and we regard the COH management team as excellent brand stewards that uphold strong operating disciplines, and we forecast incremental improvements in gross margin along with SG&A leverage on increasing scale over the long term.
Redistribution or reproduction is prohibited without written permission. Copyright ©2012 The McGraw-Hill Companies, Inc.
12
Investor Contact M. Devine (212-594-1850) Office 516 West 34th Street, New York, NY 10001. Telephone 212-594-1850. Fax 212-594-1682. Email
[email protected] Website http://www.coach.com
Officers Chrmn & CEO L. Frankfort COO & Co-Pres J. Stritzke EVP, CFO & Chief Acctg Officer J. Nielsen
Board Members L. Frankfort S. J. Kropf G. W. Loveman I. M. Menezes I. R. Miller M. E. Murphy J. J. Zeitlin
Domicile Maryland Founded 1941 Employees 15,000 Stockholders 3,461
EVP, Secy & General Counsel T. Kahn Treas N. Walsh
Adding Judgment Series - COH Research Stock Report | May 19, 2012 | NYS Symbol: COH
Coach Inc. Quantitative Evaluations S&P Fair Value Rank
3+
Expanded Ratio Analysis 1
2
3
4
5
LOWEST
Price/Sales Price/EBITDA Price/Pretax Income P/E Ratio Avg. Diluted Shares Outstg (M)
HIGHEST
Based on S&P's proprietary quantitative model, stocks are ranked from most overvalued (1) to most undervalued (5).
$63.20 Analysis of the stock's current worth, based on S&P's proprietary
Fair Value Calculation
quantitative model suggests that COH is slightly overvalued by $2.69 or 4.1%.
Investability Quotient Percentile
Technical Evaluation
LOW
Insider Activity
2009 3.68 10.86 12.17 19.08 325.6
2008 2.35 5.85 6.26 9.56 360.3
Key Growth Rates and Averages HIGHEST = 100
Past Growth Rate (%) Sales Net Income
COH scored higher than 61% of all companies for which an S&P Report is available.
BEARISH
2010 4.84 13.70 15.17 23.77 315.8
Figures based on calendar year-end price
61 LOWEST = 1
Volatility
2011 4.43 12.87 14.15 20.90 301.6
AVERAGE
NEUTRAL
3 Years
5 Years
9 Years
15.27 19.85
9.58 5.31
13.31 9.24
21.15 26.61
Ratio Analysis (Annual Avg.) Net Margin (%) % LT Debt to Capitalization Return on Equity (%)
21.18 1.43 56.50
20.28 1.49 47.08
21.97 0.96 45.60
21.24 0.73 44.54
HIGH
Since May, 2012, the technical indicators for COH have been BEARISH.
UNFAVORABLE
1 Year
FAVORABLE
Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low
2011 4.41 3.34 2.92 2.92 0.68 23% 69.20 45.70 24 16
2010 4.01 2.73 2.33 2.33 0.38 16% 58.55 32.96 25 14
2009 4.41 2.29 1.91 1.91 0.08 4% 37.36 11.41 20 6
2008 3.73 2.45 2.17 2.17 Nil Nil 37.64 13.19 17 6
2007 4.52 1.90 1.69 1.69 Nil Nil 54.00 29.22 32 17
2006 2.57 1.44 1.27 1.26 Nil Nil 44.99 25.18 35 20
2005 2.07 1.14 1.00 0.91 Nil Nil 36.84 24.51 37 25
2004 2.00 0.79 0.68 0.61 Nil Nil 28.85 16.88 42 25
2003 1.11 0.48 0.40 0.35 Nil Nil 20.42 7.26 52 18
2002 0.67 0.31 0.24 0.21 Nil Nil 8.93 4.30 38 18
4,159 1,430 125 NA 1,301 32.3% 881 881
3,608 1,276 127 NA 1,152 36.2% 735 735
3,230 1,095 123 NA 977 36.2% 623 625
3,181 1,280 101 NA 1,195 34.5% 783 783
2,612 1,074 80.9 Nil 1,035 38.5% 637 637
2,112 830 65.1 Nil 797 38.0% 494 492
1,710 679 57.0 1.22 638 36.9% 389 356
1,321 487 42.9 0.81 448 37.5% 262 236
953 274 30.2 0.70 245 37.0% 147 129
719 163 25.5 1.12 133 35.5% 85.8 74.9
Balance Sheet & Other Financial Data (Million $) Cash 702 Current Assets 1,452 Total Assets 2,635 Current Liabilities 593 Long Term Debt 23.4 Common Equity 1,613 Total Capital 1,637 Capital Expenditures 148 Cash Flow 1,006 Current Ratio 2.5 % Long Term Debt of Capitalization 1.4 % Net Income of Revenue 21.2 % Return on Assets 34.5 % Return on Equity 56.5
696 1,303 2,467 529 24.2 1,505 1,530 81.1 862 2.5 1.6 20.4 29.2 45.9
800 1,396 2,564 460 25.1 1,696 1,721 240 746 3.0 1.5 19.3 25.8 38.8
699 1,386 2,274 451 2.58 1,516 1,545 175 884 3.1 0.2 24.6 33.2 45.7
557 1,740 2,450 408 2.87 1,910 1,950 141 717 4.3 0.1 24.4 31.2 41.1
143 974 1,627 342 3.10 1,189 1,223 134 559 2.9 0.3 23.4 33.0 44.0
155 709 1,347 266 3.27 1,033 1,041 94.6 446 2.7 0.3 22.7 32.5 42.8
263 706 1,029 182 3.42 782 842 67.7 305 3.9 0.4 19.8 31.8 43.3
229 449 618 161 3.54 427 453 57.1 177 2.8 0.8 15.4 27.7 42.7
94.0 288 441 159 3.62 260 279 42.8 111 1.8 1.3 11.9 24.5 42.0
Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings
Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Redistribution or reproduction is prohibited without written permission. Copyright ©2012 The McGraw-Hill Companies, Inc.
13
Adding Judgment Series - COH Research Stock Report | May 19, 2012 | NYS Symbol: COH
Coach Inc. Sub-Industry Outlook
Stock Performance
Our fundamental outlook for the apparel, accessories & luxury goods sub-industry is neutral. We believe a weakened economy with higher unemployment and lackluster discretionary income growth has tempered apparel and accessories demand. That said, accessories and differentiated fashion continue to outperform the category. Luxury brands also rebounded in 2011, reflecting the resiliency of core affluent shoppers both in the U.S. and abroad. We believe momentum in the luxury market will continue in 2012, supported, in part, by increasing consumer awareness of luxury brands in emerging markets such as China.
GICS Sector: Consumer Discretionary Sub-Industry: Apparel, Accessories & Luxury Goods
Year to date through May 11, the S&P Apparel, Accessories & Luxury Goods Index advanced 12.3%, versus a 7.8% gain by the S&P 1500 Index. In 2011, the sub-industry index rose 17.2%, versus a 0.3% decline for the S&P 1500.
Based on S&P 1500 Indexes Month-end Price Performance as of 04/30/12
--Jason Asaeda 160 140 120
Apparel sales increased 3.8% in 2011, reflecting gains across most channels, according to The NPD Group Inc. consumer estimated data. Sales at manufacturer-owned stores rose 14.7%, followed by 6.5% and 5.6% increases in the specialty and off-price channels, respectively. Sales rose only 1.4% in the mass channel, we believe reflecting cutbacks in spending by lower-income customers, while sales at national chains and department stores grew 3.0% and 2.9%, respectively. In 2011, market shares were relatively static with the exception of the specialty channel, which added nearly a point to 33% and held the largest share of the apparel market.
100 80 60 40 20 0
2008
Given the ease of market entry, the mature apparel industry is likely to remain highly competitive, in our view. We think apparel wholesalers will increasingly use alternative distribution channels, their own retail stores, specialty shops, mass merchandisers and the Internet to offset declines at traditional department stores. In addition, we believe apparel companies will continue to reposition mature lines to lower price points and/or create new mid-priced lines specifically for discounters and mass merchandisers.
Sub-Industry
2009
Sector
2010
2011
2012
S&P 1500
NOTE: All Sector & Sub-Industry information is based on the Global Industry Classification Standard (GICS)
Sub-Industry : Apparel, Accessories & Luxury Goods Peer Group*: Designer Mens/Womens Apparel 52 Week High/Low($)
Beta
65.89
79.70/45.70
1.60
12.11 9.15 72.71 141.51 133.83
15.39/4.02 13.30/8.00 93.06/51.15 182.48/105.11 156.15/91.60
2.40 2.91 1.98 1.50 0.94
Stock Symbol
Stk.Mkt. Cap. (Mil. $)
Recent Stock Price($)
Coach Inc
COH
18,961
Fifth & Pacific Cos Jones Group PVH Corp Ralph Lauren Corp'A' VF Corp
FNP JNY PVH RL VFC
1,317 753 5,003 8,704 14,802
Peer Group
14
LTD to Cap (%)
Fair Value Calc.($)
1.8
20
63.20
B+
61
21.2
1.4
Nil 2.2 0.2 0.6 2.2
NM 31 17 21 17
6.90 9.40 80.80 132.70 134.20
BBB+ AA
13 91 48 99 91
9.5 1.4 5.4 10.0 9.4
113.1 43.9 39.7 8.1 28.8
NA-Not Available NM-Not Meaningful NR-Not Rated. *For Peer Groups with more than 15 companies or stocks, selection of issues is based on market capitalization.
Source: S&P. Redistribution or reproduction is prohibited without written permission. Copyright ©2012 The McGraw-Hill Companies,Inc.
S&P Return on Revenue Quality IQ (%) Ranking %ile
P/E Ratio
Yield (%)
Adding Judgment Series - COH Research Stock Report | May 19, 2012 | NYS Symbol: COH
Coach Inc. S&P Analyst Research Notes and other Company News e-commerce expansion, in-flow of new products, and a tiered pricing strategy that appeals to a broad range of shoppers spanning the high-end to value. We also see the development of Coach Men's expanding the company's market opportunity and enhancing its accessible luxury positioning. We reiterate our both FY 12 (Jun.) EPS estimate of $3.43 and our target price of $77. /J. Asaeda
April 24, 2012 COH posts $0.77 vs. $0.62 Q3 EPS on 17% sales rise. Capital IQ consensus forecast was $0.75. Raises its cash dividend by 33%, raising it to an annual rate of $1.20 per share.
August 23, 2011 UP 3.37 to 50.57... Jefferies upgrades COH to buy from hold. Co. unavailable. ...
April 24, 2012 10:35 am ET ... S&P REITERATES STRONG BUY OPINION ON SHARES OF COACH, INC. (COH 72.79*****): Mar-Q EPS of $0.77, vs. $0.62, beats our estimate by $0.03. Despite COH's decision to trade off growth in factory comps for better gross margins, total North American retail comps rose 6.7%, ahead of the 6.0% gain we projected. We view the company's tiered pricing strategy, multi-channel distribution, and strong product pipeline as competitive advantages. We also see Coach Men's expanding COH's global market opportunity. We lift our FY 12 (Jun.) EPS estimate $0.04 to $3.52 and FY 13's by $0.15 to $4.15. We raise our target price by $5 to $85 on revised peer P/E valuation. /J. Asaeda
August 23, 2011 12:32 pm ET ... COACH, INC. (COH 50.33) UP 3.13, JEFFERIES UPGRADES COACH (COH) TO BUY FROM HOLD... Analyst Randal Konik tells salesforce he believes recent market pullback has created compelling buying opportunity with COH. Says he cannot ignore powerful brand here with sales momentum, global growth story consistent with his broader industry thesis to buy global growth retailers. In light of recent pullback in shares, combined with stable North American business, international becoming a meaningful catalyst, now views COH's valuation as attractive. Expects results to remain solid in FY 12 (Jun). Maintains $3.38 FY 12 EPS, $3.88 FY 13 ests. Has $60 tgt. B.Egli
March 8, 2012 UP 3.96 to 77.35... Stifel reiterates buy on COH, believes estimates are increasingly likely to head higher on better topline and gross margin trends. COH unavailable. ...
August 2, 2011 COH posts $0.68 vs. $0.64 Q4 EPS on 8.5% revenue rise. Capital IQ consensus forecast was $0.65. Says entering FY 12, it remains confident in its growth prospects and ability to drive sales and EPS at a double-digit pace, given the current strength of the Coach business and its increasing global expansion.
March 8, 2012 12:27 pm ET ... COACH, INC. (COH 77.64) UP 4.25, STIFEL SEES COACH (COH) ESTIMATES LIKELY HEADING HIGHER; REITERATES BUY... Analyst David Schick tells salesforce he met yesterday with COH senior mgmt. Says while fragility risks to discretionary consumer remain (gas prices inflation, financial shocks from Europe), he believes estimates are increasingly likely to head higher on better top-line, gross margin trends. Notes COH's upcoming Legacy platform, set to start this fall, is sounding increasingly significant. Also believes strong response in Men's is allowing co. to accelerate plans for growing product presence in stores. For now, maintains $3.51 FY 12 (Jun) EPS est., $4.07 FY 13. B.Egli
August 2, 2011 01:22 pm ET ... S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF COACH INC (COH 61.48*****): COH beat our $0.65 June-Q EPS estimate at $0.68, vs. $.065, for FY EPS of $2.92, vs. $2.33. North American comps rose 10% with both the full line and the factory channel driving strong sales momentum. Men's doubled in FY 11 to $200M. Going forward, COH will emphasize Men's and international expansion with FY 12 square footage expected to increase 12%. COH increased market share in China to 6% or $185M in sales and will accelerate dual-gender growth with 30 new China stores. We lift our FY 12 EPS forecast to $3.43 from $3.31 on higher sales and fewer shares. /M. Driscoll, CFA
January 24, 2012 COH posts $1.18 vs. $1.00 Q2 EPS on 15% sales rise. Capital IQ consensus forecast was $1.15. Given the strength of its business, remains confident in its ability to continue to drive sales and earnings at a double-digit pace.
July 28, 2011 Coach, Inc. announced the appointment of Jane Nielsen as Executive Vice President and Chief Financial Officer, effective September 1, 2011. Ms. Nielsen joins Coach from PepsiCo, Inc., where she was Senior Vice President and Chief Financial Officer of PepsiCo Beverages Americas and the Global Nutrition Group, with combined revenues of over $17 billion. In her role, Ms. Nielsen was responsible for all financial management including financial reporting, performance management, capital allocation and strategic planning. During her 15 year career, Ms. Nielsen held successively senior roles in finance within the PepsiCo organization, including in Mergers & Acquisitions, Investor Relations and Strategic Planning. Ms. Nielsen replaces Michael F Devine, III, who announced his retirement from Coach, effective August 2011, earlier this year.
January 24, 2012 10:47 am ET ... S&P MAINTAINS STRONG BUY OPINION ON SHARES OF COACH, INC. (COH 67.52*****): Adjusted Dec-Q EPS of $1.18, vs. $1.00, beats our $1.12 estimate. Despite lower penetration of $400+ handbags this holiday season, North American comps rose a strong 8.8% on top of last year's 12.6% gain. We view COH's tiered pricing strategy and frequent in-flow of new products as a competitive advantages. We also see expansion in China and the development of Coach Men's expanding the company's global market opportunity. We lift our FY 12 (Jun.) EPS forecast $0.05 to $3.48 and FY 13's by $0.08 to $4.00. We raise our target price by $3 to $80, on revised peer-P/E valuation. /J. Asaeda January 24, 2012 10:39 am ET ... COACH, INC. (COH 67.77) UP 3.53, COACH, INC. (COH) POSTS HIGHER Q2 EPS. JEFFERIES RAISES ESTS, TARGET, KEEPS BUY... Analyst Randal Konik tells salesforce COH posted a strong Q2 top line, with North America same-store sales up 9% (vs. his 6% growth est.) after continued market share gains during the Holiday season. Notes there also meaningful opportunity for international expansion (China/Europe) coming on sooner than he thought, especially in China. management team, and compelling global growth story. Raises $3.45 FY 12 (June) EPS estimate to $3.49, $3.97 FY 13 to $4.00. Also raises $75 price target to $80. M.Morrow October 25, 2011 COH posts $0.73 vs. $0.63 Q1 on 15% sales rise. S&P Capital IQ consensus was $0.70 EPS. Says results reflect strength in its brand position and the vitality of the category. October 25, 2011 10:55 am ET ... S&P MAINTAINS STRONG BUY OPINION ON SHARES OF COACH, INC. (COH 63.27*****): Q3 EPS of $0.73, vs. $0.63, meets our estimate and tops the Capital IQ consensus by $0.03. We see ample opportunities for COH to further penetrate the global premium handbag and accessories market, via retail and
Source: S&P. Redistribution or reproduction is prohibited without written permission. Copyright ©2012 The McGraw-Hill Companies,Inc.
15
Adding Judgment Series - COH Research Stock Report | May 19, 2012 | NYS Symbol: COH
Coach Inc. Analysts' Recommendations Monthly Average Trend
Wall Steet Consensus Opinion Buy
Buy/Hold
Hold
Weak Hold
B
BH
H
WH
Sell S
No Opinion
BUY/HOLD
COH Trend
Companies Offering Coverage
Wall Street Average B BH H WH S
Number of Analysts Following Stock 40 30 20
Stock Price ($) 80
60
40
20
J
J
A
S
O
N
D
J
F
M
A
M
J
2010
J
A
S
O
N
D
J
F
2011
M
A
M
2012
Of the total 40 companies following COH, 33 analysts currently publish recommendations. No. of Ratings 14 9 8 1 0 1 33
Buy Buy/Hold Hold Weak Hold Sell No Opinion Total
% of Total 42 27 24 3 0 3 100
1 Mo. Prior 3 Mos. Prior 14 13 8 8 8 9 1 1 0 0 1 1 32 32
Wall Street Consensus Estimates Estimates
Wall Street Consensus vs. Performance 2012
For fiscal year 2012, analysts estimate that COH will earn $3.53. For the 3rd quarter of fiscal year 2012, COH announced earnings per share of $0.77, representing 22% of the total annual estimate. For fiscal year 2013, analysts estimate that COH's earnings per share will grow by 18% to $4.17.
2013
5 4 3 2
J
F
M
A
M
J
J
A
S
O
N
D
J
F
2011
Fiscal Years 2013 2012 2013 vs. 2012 Q4'13 Q4'12 Q4'13 vs. Q4'12
Over 30 firms follow this stock; not all firms are displayed. Atlantic Equities LLP BofA Merrill Lynch Brean Murray, Carret & Co. Buckingham Research Group Inc. Canaccord Genuity Citigroup Inc Collins Stewart LLC Cowen and Company, LLC Credit Agricole Securities (USA) Inc. Credit Suisse Daiwa Capital Markets America Inc. Daiwa Securities Capital Markets Co. Ltd. Deutsche Bank Goldman Sachs Gradient Analytics, Inc. HSBC ISI Group Inc. JP Morgan Jefferies & Company, Inc. KeyBanc Capital Markets Inc. Lazard Capital Markets Miller Tabak & Co., LLC Morgan Stanley Morningstar Inc. Needham & Company Nomura Securities Co. Ltd. Oppenheimer & Co. Inc. Pali Capital Piper Jaffray Companies Renaissance BJM
M
A
M
2012
Avg Est. 4.17 3.53 18%
High Est. 4.45 3.81 17%
Low Est. 3.97 3.48 14%
# of Est. 31 32 -3%
Est. P/E 15.8 18.7 -16%
1.01 0.85 19%
1.12 0.87 29%
0.95 0.82 16%
18 25 -28%
65.2 77.5 -16%
A company's earnings outlook plays a major part in any investment decision. Standard & Poor's organizes the earnings estimates of over 2,300 Wall Street analysts, and provides their consensus of earnings over the next two years. This graph shows the trend in analyst estimates over the past 15 months.
Source: S&P, Capital IQ Estimates, Inc. Redistribution or reproduction is prohibited without written permission. Copyright ©2012 The McGraw-Hill Companies,Inc.
16
Adding Judgment Series - COH Research
17
