Tags: Coach | brand | power | COH

Coach Seeking Growth in Asia On Brand Power

By    |   Friday, 27 April 2012 02:04 PM

Coach (COH) has succeeded in carrying itself through a slow economy by emphasizing upscale U.S. buyers while seeking growth opportunities around the margins, particularly in emerging Asia, on brand power. Interestingly, good old fashioned email plays role.

Coach has growth from a Manhattan family business into a globally known brand on par with the iconic names in luxury goods. Its business is strongly identified with its signature line of women’s handbags but includes men’s goods, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches and fragrance.

Handbags represent roughly 63 percent of sales, accessories 27 percent and all other products 10 percent. The company had 345 North American retail stores at the end of fiscal 2011 and 143 “factory” outlet stores. In its latest report, Coach said those numbers had risen to 350 and 177.

“In conjunction with promoting a consistent global image, Coach uses its extensive customer database and consumer knowledge to target specific products and communications to specific consumers to efficiently stimulate sales across all distribution channels,” management told investors in a filing.

“In fiscal 2011, consumer contacts increased 52 percent to over 625 million primarily driven by increased email communications. The company continues to leverage marketing expenses by refining our marketing programs to increase productivity and optimize distribution.”

Abroad, there were 169 Coach Japan stores and 66 Coach China stores, plus 211 international sales locations, between freestanding stores and department store operations, in 2011. Coach recently said it now has since 177 stores in Japan and 80 in China.

Coach is reportedly targeting 500 locations in North America and expects to build its share of the men’s market for luxury accessories here and in Japan.

Analysts expressed mild surprise at the resiliency of the U.S. luxury goods market, despite the credit crisis and market collapse, and believe that trend will extend into 2012. Part of the support will come from China growth, they contend.

Bullish view

Coach is a $21.08 billion market cap firm in the textiles, apparel and luxury goods segment, about five times the average size for companies in the sector. It has a trailing 12-month P/E ratio of 21.81, higher than the sector average. Its projected five-year price-to-earnings-growth (PEG) ratio is 1.35.

Coach’s projected earnings per share growth for the coming year is 17.56 percent, vs. 23.9 percent for the sector.

Wall Street is bullish on Coach, with buy or outperform calls from William Blair & Co., Standard & Poor’s, Credit Suisse, Piper Jaffray, Jeffries, Citigroup, and Needham & Co.

Not a single major research institution recommends a sell.

Coach next reports on July 31.

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