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Coach: Fashioned For Success

|Includes: Tapestry, Inc. (TPR)

Coach, Inc.(COH) is a very well run company. It is a leader in the luxury handbags business and is a beloved brand. The company benefits from its world class management and various other advantages. In addition, the company continues to expand its line of products. The stock of the company is relatively cheap, and has great future prospects; and the balance sheet is well maintained.


Coach designs and retails modern, fashionable handbags and accessories. The company offers easily recognizable luxury products that are sold at a relatively attractive price. Coach is currently the global leader in the premium handbags category, with a continually increasing market share. Due to the company's excellence in its category, it was listed in Fortune magazine's 'World Most Admired Company's' list, in the apparel field.

Competitive Advantage:

The company's stores look modern and sophisticated. This helps improve the presentation of the products, on display. A modern look is necessary for a store such as Coach's since its clientele is more premium. In addition, the store associates maintain high standards of customer service. Such emphasis on elegance and modernity attract and maintain loyalty amongst customers.

The company stresses fashion forward designs. Coach maintains extensive archives of product designs from the last 70 years, which are used by designers for new product ideas. Coach also spends resources on analyzing market trends and consumer preferences, to follow the fashion trends closely.

Coach's customers have a special emotional connection with the brand, built over several decades. This relationship helps the company beat out the competition with relative ease. The company's innovative products and high quality service ensure that these connections get deeper each year.

Innovation and Growth:

Although Coach has been highly successful in the luxury handbag business, it recently made a decision to branch into other lifestyle products. The company recently started to sell women's and men's apparel and has strengthened its footwear offerings. The company has carefully selected top designers to aid in the new businesses. These new ventures should provide a new source of sustainable revenue, and help increase awareness about the company as a whole.


One of the biggest reasons for Coach's success has been its great leadership. The company's CEO, Lew Frankfort, has been with the company for 34 years. He became the CEO in 1995, and steered the company from a $550 million revenue business in 2000 to a $5 billion business in 2010. Frankfort has been able to grow the business by using his business savvy and careful research into customers' wants. Although he plans to retire next year, he has already helped the company harden its foundation with several business advantages and world class personnel.

Balance Sheet:

At the end of June 2012, the company's current ratio was 2.51. Coach has had a relatively high current ratio for the last several years. The company's operating cash flows continue to rise at a rapid pace. The cash reserves have remained high despite rising dividends. For instance, the dividends almost tripled between 2010 and 2012. Also, the company repurchases its stock actively. Below are the diluted shares outstanding; starting on the right with year 2008, at 360,322, and ending with 2012, on the left.

Stock Price:

Coach has a relatively low PE ratio(ttm) of 15.25. Compare this with the S&P 500 PE ratio of 18.67. However, the PE ratio seems even lower considering the fact that retail spending has not made a full recovery. As consumer sentiment starts to rise, the earnings of the company should rise along with it, leading to potentially higher stock prices.

The earnings of the company have been growing at double digit rates since 2009. Even if the growth in earnings slows down in the next few years, the long term growth prospects would remain promising due to the company's world class business model.


Coach is one of the best and most recognizable retail brands in the world. The company has a finger on the pulse of the customers and lays high emphasis on staying fashion forward. In addition, the company offers high quality customer service and benefits from very good management.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.