Stock Watch
Coach: Bag of Cheer
Analysts expect the luxury retailer to be a popular stop for Santa's helpers this year.
November 22, 2005
Retailers are hoping the day after Thanksgiving rings in a bustling holiday shopping season. Luxury handbag maker Coach (COH) typically generates more than 30% of its revenue during the holiday quarter, according the Standard & Poor's. And analysts expect this year's holidays to be as jolly as ever.
The stock is featured in this week's issue of Standard & Poor's Outlook newsletter as a stock selection for the holidays.
S&P analysts believe affluent consumers won't be hurt as much by higher energy costs as other consumers may be. So they expect retailers offering luxury goods to enjoy strong demand. (Analysts also expect discount purveyors, on the opposite end of the retail spectrum, to come out ahead.)
Analysts like Coach for more than its holiday promise, however. S&P analyst Marie Driscoll says she sees "ample opportunities" for Coach in the market for luxury handbags and small leather goods, which she estimates at $4.3 billion in the U.S.
Driscoll points out that the company's same-store sales grew at double-digit rates the past two fiscal years, and this year looks to be keeping up the pace. And she thinks the company's broader variety of products (including nonleather goods), along with increased store traffic and greater sales of higher-priced items, "will support growing sales and earnings momentum."
Driscoll notes that not only is the company opening new stores and remodeling existing ones at home, it's also expanding into Japan through a joint venture. She expects Coach will increase its share of the market there from about 8% currently to about 15% in 2010.
Analysts surveyed by Thomson First Call estimate Coach's earnings per share will increase 20% annually over the next five years.
Coach's stock has gained more than 20% for the year, and, at $35, it trades at 26 times the consensus earnings estimate of $1.35 per share for calendar 2006. But Driscoll's analysis doesn't reveal the stock to be luxury-priced. In fact, she sees it as a bargain.
--Lisa Dixon
