Time to Shop for a Handbag COH
In continuing with my love for the retail sector, this article analyses the leading accessories retailer, Coach Inc. (COH).
Background Information C ugg boots sale oach, Inc. is a manufacturer and designer of handbags and other accessories like footwear, outerwear, business cases, sunwear, watches, travel bags, jewelry and fragrance etc. It predominantly operates in the North American markets and also has a presence in countries such as Japan and China. It operates 293 retail stores in US (as of June 28, 2008). Additionally, it also operates factory outlets and department store shop in shops.
Strengths The company has the highest market share in the luxury handbag seg ugg boots sale ment of the US market and this market share is expected to continue to improve with the opening of new stores and growth in same store sales. Additionally, the company expects to double its market share (existing 8%) in Japan in the next few years. Also, the handbag market was one of the few segments in the retail sector that actually grew during this recession.
The company has a strong balance sheet with no long term debt and good cash flow. Further, it is aggressively buying back its stock and currently has $709.6 Million (as of the last quarterly results) available for stock purchase under the current plan. As a testament to its financial strength, Coach recently declared its maiden cash dividend at an annual rate of $0.30 a share.
Weakness ugg boots sale es The company operates in a consumer discretionary sector. US and global economic slowdown can have a severe impact on the short term profitability of the company. Particularly, future growth in Coach will primarily be driven by the Japanese and Chinese consumer. A longer than expected recovery in these regions could adversely impact the growth rates. As an example, during the last quarter, Coach announced that it closed four stores as a cost cutting measure.
The table that follows presents the company fundamentals.
Market Cap (Millions)Net Profit MarginReturn on EquityProjected 5 Year Growth RateLT Debt to CapDuring the last five years, Coach increased its income at an annual rate of 40 percent. Sustaining thi ugg boots sale s level of growth is not practical. Analysts expect Coach to grow at a annual rate of 14 percent which is in line with broader accessories sector and higher than the projected annual growth rate of 10 percent for the S 500. The EPS estimates for the Coach are shown below:TTM EPS2010 EPS Estimate