BB&T Capital Markets analyst Corinna L. Freedman initiated coverage today on Kate Spade & Co. and Coach Inc. — viewing each with vastly different outlooks.
Freedman tagged Coach with an “Underweight” rating. Shares of Coach fell 5 percent on the news to $34.61 in midmorning trading. The sector was also being weighed down by Michael Kors, which shares were off 22 percent after issuing tepid guidance with its earning report.
In the downgrade report, Freedman appears skeptical about Coach’s outlook. “Nearly one year has passed since management laid out its turnaround plan, and we have concerns about the company’s progress to date,” Freedman said. “We believe that it still remains to be seen whether Coach can change the brand’s positioning, and our expectations remain low.”
With Kate Spade, Freedman has the company pegged with a “Buy” rating and a $35 price target. Shares of the company were down today 2.4 percent to $26 in midmorning trading. Earlier this month, Wedbush analysts initiated coverage on Kate Spade with an “Outperform” rating and a $39 price target.
“In the near term, we find current category concerns overblown and valuation appealing,” Freedman said in the report. “We believe the refinements to the strategic plan are largely in the past for the company and we expect continued consistent execution for the balance of the year to support continued improvements in sentiment and drive valuation higher relative to recent performance and competitors.”
In the long term, Freedman expects 20 percent square footage growth and expansion of its wholesale business “as well as merchandising initiatives” that “will fuel top line, resulting in significant operating leverage and likely drive upside to our conservative fiscal 2020 earnings per share estimate of $1.85.”
The company’s two key brands are Kate Spade New York and Jack Spade. Kate Spade also owns the Adelington Design Group, a private-label jewelry business that has licensing deals with the Liz Claiborne and Monet jewelry lines, according to the company.
The company also operates 235 retail stores. Freedman said in the report that of the firms she covers, Kate Spade “is currently the second-fastest growing retailer and has posted 22 quarters of consecutive positive comps.”