By  on December 5, 2005

NEW YORK — Goldman, Sachs & Co. analyst Margaret Mager issued a bullish report on Coach Inc. last week after several store visits and channel checks, as well as an "extensive" talk with management of the luxury goods company.

Mager described Coach as a "growing company in a growing market" and urged investors buy shares of the company "now." She also said the company may extend its brand into other categories, such as fragrances.

"Coach shares look attractive for both the near-term and long-term appreciation and we recommend investors purchase the stock," she said in her report, adding that she is "highly confident that Coach is on track for another strong holiday season."

"Moreover, we see growth trends continuing into 2006 and beyond as accessories consumption is on the rise in the U.S.," Mager wrote.

The analyst said she sees 20 percent earnings per share growth over the next three to five years, "suggesting a solid investment return."

Mager went on to say that the demand for "well-designed, quality accessories is far from saturated in our view." The analyst expects the segment to experience 15 to 20 percent year-over-year growth in 2005, which is on a 25 percent gain in 2004.

"More and more U.S. women are stepping up purchases of handbags in response to product innovation, better merchandising and marketing across the industry," Mager said, adding that the high-end handbags and accessories is a $4.7 billion market, which is a "solid backdrop for continued growth at Coach."

In Mager's report, the analyst outlined several business "tidbits" from the management of Coach, which includes plans for Coach to grow its top line by 20 percent over the next few years.

Regarding its retail positioning, the company "does not want its U.S. factory outlet channel to exceed 33 percent of its full price channel," Mager said. "It is currently 28 percent, suggesting accelerated growth will continue. Once the target range is achieved, Coach plans to slow down sales growth in the channel by adjusting the discounts offered downward."

Regarding its sourcing, Mager said Coach is working with about 60 factories in Asia. "Asian workers spend 67 percent more time working on a bag than a U.S. worker did when Coach operated its own U.S. factories," she said. "This has allowed Coach to improve its quality while still lowering costs."Mager also said brand extensions "into new categories such as fragrance and jewelry are possible in 12 to18 months."

Mager said Coach garners the most market share — 23 percent — in the U.S. premium handbags and accessories market. Louis Vuitton has 12 percent and Dooney & Bourke has 7 percent, while Gucci and Prada each have 6 percent.

The analyst said Coach's Japanese market share is about 8 percent, which is behind Louis Vuitton's 20 percent.

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