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Update Coach (COH)
03/29/2010 11:14 am EST
Update Coach (COH)
Let it run. Coach (COH) hit my October 2010 target of $40 last week, but the numbers on the U.S. economy look good enough in the short run and the momentum of U.S. stocks is strong enough right now that I’m going to keep this money on the table. (For more on why the U.S. stock market is likely to be the best performing stock market in the world in the next three months for so, see my post http://jubakpicks.com/2010/03/19/how-long-can-this-last-the-u-s-stock-market-is-out-performing-the-world/ )
I think Coach has done a great job of navigating through the economic slowdown by shifting its price points and managing the mix between its full-price and out let stores so that sales stayed strong but margins didn’t take too much of a beating.
Now Coach gets to reap some of the reward for handling the downturn so well.
With growth picking up in the U.S. economy, Coach’s mix will shift again but this time back in favor of its full-price stores. In those stores customers will find lines that fit these recovering but still not flush times. Coach has added products to keep 50% of its handbags at $300 or less. The shift in favor of full-price stores should drive gross margins higher: Standard & Poor’s is looking for gross margins to improve by about 0.3 percentage points in the fiscal 2010 year that ends in June.
The long-term future for the company looks solid too. Coach finished 2009 with about $1 billion in cash. That should be more than enough to fund the company’s planned expansion in China where the company now owns just 4% of the luxury goods market.
As of March 29, 2010 I’m raising my target price to $44 a share by October 2010.
Full disclosure: I own shares of Coach in my personal portfolio.
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