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
G P/E
51.04
28.8
16.9
36.8
24.5
RATIO
45.0
25.2
16.9 RELATIVE
DIVD
Median: 21.0) P/E RATIO 0.84 YLD 2.4%
13.8(Trailing:
54.0
29.2
37.6
13.2
37.4
11.4
58.6
33.0
69.2
45.7
79.7
48.2
Target Price Range
2015 2016 2017
LEGENDS
15.5 x Cash Flow p sh
. . . . Relative Price Strength
Raised 1/25/13
2-for-1 split 7/02
BETA 1.20 (1.00 = Market)
2-for-1 split 10/03
2-for-1 split 4/05
2015-17 PROJECTIONS
Options: Yes
Annl Total Shaded areas indicate recessions
New 2/15/02
Price
Gain
Return
High 110 (+115%) 23%
Low
70 (+35%) 10%
Insider Decisions
to Buy
Options
to Sell
M
0
0
2
A
0
0
0
M
0
0
0
J
0
0
0
J
0
0
0
A
0
2
1
S
0
0
0
O
0
2
1
160
120
100
80
60
50
40
30
2-for-1
N
0
2
2
% TOT. RETURN 12/12
Institutional Decisions
1Q2012
2Q2012
3Q2012
287
359
366
to Buy
to Sell
355
303
350
Hlds(000) 256616 246552 248572
VALUE
LINE
Percent
shares
traded
30
20
10
1 yr.
3 yr.
5 yr.
THIS
STOCK
VL ARITH.*
INDEX
-7.4
58.8
91.1
17.4
40.1
40.9
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 16.71 18.35 Sales per sh A
25.95
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
4.11
4.35 Cash Flowper sh
6.10
issued to the public at $16.00 a share in Oc.24
.40
.68
1.00
1.27
1.69
2.06
1.91
2.33
2.92
3.53
3.70 Earnings per sh AB
5.30
tober, 2000. The transaction was led by
-------.08
1.78
.38
.68
.98
1.30 Divds Decld per sh E
Goldman Sachs & Co., Morgan Stanley
.73
1.17
2.06
2.73
3.21
5.13
4.50
5.33
5.07
5.59
6.99
7.80 Book Value per sh
13.10
Dean Witter, and Prudential Securities. Sara 357.81 366.02 379.24 378.43 369.83 372.52 336.73 318.01 296.87 288.51 285.12 275.00 Common Shs Outstg D 260.00
Lee subsequently distributed the remaining 22.1 21.4 26.5 25.8 26.2 24.7 17.7 11.3
15.2
17.3
18.4
Avg Annl P/E Ratio
17.0
stock to shareholders.
1.21
1.22
1.40
1.37
1.41
1.31
1.07
.75
.97
1.09
1.17
Relative P/E Ratio
1.15
--
CAPITAL STRUCTURE as of 12/29/12
Total Debt $22.7 mill.
LT Debt $.5 mill.
Due in 5 Yrs $22.7 mill.
LT Interest NMF
(Less than 1% of capital)
Leases, Uncapitalized: Annl rentals $179.3 mill.
No Defined Benefit Pension Plan
Pfd Stock None
Common Stock 285,186,057 shares
as of 8/3/12
MARKET CAP: $14.9 billion (Large Cap)
CURRENT POSITION 2011
2012 12/29/12
($MILL.)
Cash Assets
702.0
917.2
858.7
Receivables
143.0
174.5
223.0
Inventory (Avg Cst) 421.8
504.5
493.7
Other
185.6
208.3
273.0
Current Assets
1452.4 1804.5 1848.4
Accts Payable
118.6
155.4
152.6
Debt Due
.8
22.4
22.2
Other
473.6
540.4
594.1
Current Liab.
593.0
718.2
768.9
ANNUAL RATES Past
of change (per sh) 10 Yrs.
Sales
22.5%
Cash Flow
29.5%
Earnings
31.5%
Dividends
-Book Value
25.0%
Fiscal
Year
Ends
2009
2010
2011
2012
2013
Fiscal
Year
Ends
2009
2010
2011
2012
2013
Calendar
2009
2010
2011
2012
2013
Past Estd 10-12
5 Yrs.
to 15-17
20.0% 15.0%
18.0% 15.0%
17.5% 16.0%
- - 32.0%
10.0% 16.0%
QUARTERLY SALES ($ mill.) A
[Link] [Link] [Link] [Link]
752.5 960.3 740.0 777.7
761.4 1065.0 830.7 950.5
911.7 1264.4 950.7 1031.7
1050.4 1448.6 1109.0 1155.2
1161.4 1503.8 1165 1219.8
EARNINGS PER SHARE A B
[Link] [Link] [Link] [Link]
.44
.67
.38
.43
.44
.75
.50
.64
.63
1.00
.62
.67
.73
1.18
.77
.86
.77
1.23
.80
.90
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
.60F
--
Full
Fiscal
Year
3230.5
3607.6
4158.5
4763.2
5050
Full
Fiscal
Year
(A) Fiscal year ends Sat. closest to June 30th.
(B) Dil. egs. Qrtrly. EPS may not sum due to
rndg. Incl. stock options as of FY07. Reflects
disc. of corporate accounts business beginning
1.91
2.33
2.92
3.53
3.70
Full
Year
.225
.380
.750
1.35
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%
1.3%
1.5%
3607.6 4158.5 4763.2
76.5% 75.7% 75.6%
35.4% 34.4% 34.5%
462
488
523
734.9 880.8 1038.9
36.2% 32.3% 31.0%
20.4% 21.2% 21.8%
773.6 859.4 1086.3
24.2
23.4
1.0
1505.3 1612.6 1992.9
48.1% 53.9% 52.1%
48.8% 54.6% 52.1%
42.6% 43.6% 39.1%
13%
20%
25%
Avg Annl Divd Yield
5050
75.0%
34.3%
980
1050
32.7%
20.8%
1150
Nil
2150
49.0%
49.0%
34.5%
35%
Sales ($mill) A
Gross Margin
Operating Margin
Number of Stores C
Net Profit ($mill)
Income Tax Rate
Net Profit Margin
Working Capl ($mill)
Long-Term Debt ($mill)
Shr. Equity ($mill)
Return on Total Capl
Return on Shr. Equity
Retained to Com Eq
All Divds to Net Prof
2.0%
6750
75.5%
34.5%
1175
1400
35.0%
20.7%
2000
Nil
3400
41.0%
41.0%
27.5%
33%
BUSINESS: Coach, Inc. is a designer, producer, and marketer of
high-quality modern American classic accessories. Primary product
offerings include handbags, womens and mens accessories, business cases, luggage, leather outerwear, gloves, scarves, and personal planning products. Also licenses watches, footwear, and
home and office furniture. Operates 523 North American stores (in-
cluding 169 factory outlets). Direct-to-consumer channel accounted
for about 89% of total net sales in fiscal 2012; indirect channel,
(11%). Acquired remaining 50% interest in Coach Japan, 7/05.
Off./dir. own 2.3% of common shares (10/12 Proxy). Chairman and
CEO: Lew Frankfort. Inc.: MD. Add.: 516 W. 34th St., New York,
NY, 10001. Tel.: 212-594-1850. Internet: [Link].
The investment community did not
take kindly to Coachs second-quarter
(fiscal year ends June 29th) results.
Indeed, the stock gave back all of its early
gains and is down 10% since our November report. Although the company posted
share net of $1.23, a nickel better than it
did in the same period last year, it came
up a nickel short of our estimate. Sales
growth disappointed, with same-store
sales slipping 2% (versus our call for a 2%
advance) mainly due to weakness in the
North American womens handbag business. It ought to be noted that the sharenet advance factors in share repurchases
and that earnings only advanced 1.5%.
The operating environment is likely
to remain tough. No doubt that the
cumulative effects of Hurricane Sandy and
the averted fiscal cliff dampened already
weak consumer confidence in the holiday
period. And although these issues ought to
be in the rearview mirror, we worry that
there may be some other factors at play
here also, namely greater competition. Indeed, the landscape has been heating up,
specifically in North America, with the
Michael Kors brand continuing to make a
name for itself. Kors has been posting far
better comp sales and operating margins
of late and looks to be taking market
share. Although Coach is said to have
limited promotional activity, it will be difficult to do so if the competitive pressures
continue to mount and stockrooms remain
filled with merchandise. Erring on the side
of caution, we have tempered our fiscal
second-half share-net estimate by a dime,
anticipating mid-single-digit growth.
That said, we believe that the longerterm outlook remains healthy. Managements track record leads us to believe
that it will be able to work out the kinks
in the womens handbag business, while
expansion overseas and into new market
niches (namely menswear) ought to be bigger contributors by mid-decade. A healthy
balance sheet, meanwhile, will likely enable management to continue rewarding
shareholders. COH offers meaningful total
return potential at the currently depressed
price. Investors ought to note that there
may be a few bumps in the road as management attempts to transform Coach into
a lifestyle brand.
Andre J. Costanza
February 1, 2013
FY06. Excl. nonrecurring: 08, ($0.12). Next
egs. report late Apr. (C) Store count only
reflects N.A. retail and factory stores through
FY 12 (Includes all thereafter). (D) In mill.,
adjd. for splits. (E) Div. initiated in 6/09. Div.
paid in early Jan., April, July, and Oct. Jan. (F)
Incl: an extra $0.30 payment on 12/27/12.
(G) Price as of 10:30 AM EST on 1/24/12/
2013, 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.
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Companys Financial Strength
Stocks Price Stability
Price Growth Persistence
Earnings Predictability
A
50
90
90
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