Coach, Inc. (COH)

Okay, lets see what we have

- Excellent balance sheet. COH has no real debt and net cash of over 400m.
- High profitability. COH has consistently maintained profit margins in the 20-25% range.
- Great management. The CEO is the best in the retail business (see above) and owns 5% of the stock.
- Solid growth potential. COH is in the process of a very profitable Asian expansion. The possibility of introducing lower cost goods could expand the costumer base as well. Also, the massive failures of their competition (think Macy's/Nordstrom) will only help to increase market share. Their loss is COH's gain.
-Good valuation. COH is currently trading at about 9x estimated forward earnings. This is even cheaper when compared to the companies growth rate.

COH looks like a solid bet to outperform. The near-term will be rocky, and margins will likely compress as consumer credit still remains tight. However, COH's current margins and balance sheet will give them a much easier road through this economy than their competition. The potential increase in spending from mortgage refinancing and tax cuts could help prop up near-term sells as well.

I bought COH in 2004 when investors were really not clued in to it. It's up 108% as of 1/28/07. Is it still worth owning? I say yes. It is still in it's high growth phase. Return on equity exceeds 40%. Debt has been reduced to virtually zero...nice in the current interest rate environment. Profit margins at about 23%. Shares have been diluted, but only in a very superficial way. Shares are available at a discount to intrinsic value. So it is still a green light at this point, but one will want to keep up with the story to look for signs of deterioration in the business model. Specifically, I worry about competition from knock offs. Hopefully they are branching out into related areas.

Great management (One of Barron's top rated). Opening stores in newly affluent China. Strong and loyal customer base. Retail market segment still very strong.

I own Coach, and was lucky to buy it when it was reasonably priced, but with a 40 PE, I won't be buying more until the price comes down to more realistic levels. Over a longer period, it should outperform, so I'm not going to sell.

COH has begun a "seasonal" move, and I think its season is going to expand to embrace the next five quarters at least. Big money may be in fewer hands, but it will be spent on COH and others that sell that, "I've got it!" brag.

Niche retailer with unusually high margins and solid growth rate. Lots of room to expand overseas. While a luxury item, its pocketbooks are priced to sell. Its CEO Lew Frankfort has no intention of losing.

Love it!! Love it!!! Love it! Coach has also become VERY POPULAR with teenage girls. These girls buying $79-$129 bags (via parents, gifts, etc) will eventually graduate to woman buying $200+ bags/wallets/whatever!! Brand Loyalty here!

Top management pushing a top product. Customer base is high end and will continue to push profits and stock price up.

Moat: Strong brand - affordable/ accessible luxury.

Competition: COH has definitely found its niche in a highly fragmented fashion market, with no pure competitors. The closest competitor may be Kenneth Cole.

Threat and Opportunity: COH relies heavily upon continuing to hit fashion trend for top line growth. The management recently mentioned that its TAM is larger than they previously estimated. There is still ample room for COH to grow both domestically and internationally (esp. in Asia), and across all channels.

Financials: Strong balance sheet with little debt. Strong cash flow from operations. Impressive and improving profitable margin due to top line growth, favarable product/channel mix and better sourcing.

Quaity hanbags/accessories. 4th Q earnings stronger than predicted. Strong economy will assure continued spending in the high-end clothing/accessories market. COH to be opening many new retail outlet stores, giving even more name-recognition in smaller towns. A new venture into a fragrance line may either lead to greater success or may prove the old adage "stick to what you do best." Will be wathing carefully.

Best product in their market at the best price. Real leather and great brand. Their price puts it in the range of the average mom or grandmother unlike luis vitton etc. Great gifts from dads to moms.

bad economy = no 800$ purses

Poor earnings/sales results are priced in for Q4 2008 and Q1 2009. The uncertainty beyond that is also priced in. But this 'uncertainty' is driving the whole sector down to severely discounted prices. At these prices, it makes it seem as though absolutely nobody will be shopping for any branded items for the next half decade.

Pick up a solid sector leader with phenomenal growth prospects in Coach.

38.7% ROIC for past 5 years, strong growth in equity, sales, EPS, etc. This company is a winner. Cheap now, too, because investors are overly pessimistic about luxury goods in this beaten down economy.

VL

In the face of terrible economic conditions, the Company refused to lower its retail prices for the holiday season. One the one-hand, I respect their attempts to avoid over saturation / devaluation of their products. Unfortunately though, the market for Coach products has and will continue to be flooded by knock-offs, resulting in exactly the same problem without the revenues.

COH will underperform over next 6 months based on retail christmas reports and general cycle of Coach stock movement. I remain bullish long term.

Consumer slowdown has started. Anything bought with home equity withdrawal will get killed.

Girls love it!