Coach well placed to benefit from global growth

August 3, 2012

  • Quality brand offering premium accessories
  • Improving US performance
  • Growing exposure to China
  • Q3 earnings grew 24%
  • PE of 17.5

 

Founded in 1941, Coach has grown from a family-run workshop in a Manhattan loft to a leading American marketer of fine accessories and gifts for women and men.  Coach is one of the most recognized brands in the U.S. and in targeted international markets offering premium lifestyle accessories.

In Q3 results Coach reported sales increase of 17% and earnings growth of 24% reflecting strong growth across all channels, categories and geographies and, in particular, the effectiveness of new promotional strategies in the North American factory business.  Internationally, the company grew rapidly and confirmed it remains on course to generate at least $300 million in sales in China this year.

The result is the latest in a string of strong results for Coach that has seen double digit sales and earnings growth in both 2010 and 2011.  Consensus earnings forecast earnings growth to average over 15% for the next five years with EPS of $3.53 and $4.15 forecast for 2012 and 2013 respectively. 

Given a strong franchise and growing representation in key Asian markets, Coach looks well placed to benefit from global growth and an improving domestic economic outlook.  The fashion industry is notoriously fickle in its tastes, but Coach's valuation at just over 17.5 times historic earnings looks a little cheap for a company with such a positive outlook that has consistently delivered in recent years.  

 

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Disclosure:  The author holds no positions in Coach and has no intention to initiate any in the next 72 hours.