Seeking Alpha
Profile| Send Message|
( followers)  
Shares of Coach Inc. (NYSE:COH), the undisputed leader in accessible accessories, got hammered Tuesday after the company beat earnings but missed expectations.

As you know, reality never had a home on Wall Street. The reality is that Coach is still -- in our opinion -- hitting all cylinders. Its niche of aspiration-driven handbags and accessories has transformed the company into a cash cow and global brand with a business we believe is sustainable over the long term. We believe Coach's growth strategy is sound and if anyone can carry it out to a T, it's Coach's "A game" management.

What's on tap for the remainder of 2006? Coach is blowing up in Japan (the Japanese consumer feels no qualms paying premium prices for top bags) and increasing store square footage in its US spots. The former should enable Coach to segue into the China market and the latter should give it more operating leverage by enabling Coach to control its pricing policies. With 33% operating margins, close to $2 a share in cash, and negligible debt, Coach looks like a steal.

In the last 12 months, Coach has converted roughly 20% of its sales into free cash flow, which means this is one retailer that'll probably never go back to the capital markets to fund itself. And you know what retailers do with excess cash, right? Expand, expand, expand. Here's the bottom line: Coach said Tuesday that it expects 2007 EPS to come in at $1.50 -- that's a 20% jump from 2006 EPS. Right now, Coach is trading at 22x next year's projected numbers, or 1.1x growth. Did we just say 1.1x growth? Yup -- get your shopping bags, kids: Coach is on sale and mommy's in the mood to buy.

Source: Market Puts Coach On Sale (COH)