Handbag Cage Match: Kate Spade Vs. Coach Vs. Michael Kors

Citi analyst Kate McShane recently pitted luxury handbag stocks Kate Spade & Co KATE, Coach Inc COH and Michael Kors Holdings Ltd KORS head-to-head in a 10-round “cage match” to see which stock offers the best opportunity for investors. Here’s a re-cap of the battle.
 

Round 1: Market and Competitive Landscape
All three companies are well-positioned in the affordable luxury segment of the handbag market, but Kate Spade’s relatively low penetration and strong growth makes it exceptional.
Winner: Kate Spade

Round 2: Consumer Demographics
Both Coach and Michael Kors have broad customer bases, but Michael Kors has been more successful in branching out into categories other than handbags.
Winner: Michael Kors

Round 3: Sustainable Competitive Advantage
Kate Spade has the advantage of learning from the brand-tarnishing mistakes that the other two companies have made (factory/wholesale).
Winner: Kate Spade

Round 4: Revenue/Square Footage Growth
Kate Spade’s comps and market share growth are on a whole different level than competitors.
Winner: Kate Spade

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Round 5: Operating Margin Direction and Opportunity
Kate Spade is the only name of the three with expanding operating margins.
Winner: Kate Spade

Round 6: ROIC
Although Kate Spade has plenty of room to improve ROIC, the company has a lot of ground to make up to top Michael Kors.
Winner: Michael Kors

Round 7: Shareholder Friendliness
Kate Spade is focusing on reinvesting in its business, but Coach has the longest history of the three when it comes to returning cash to shareholders.
Winner: Coach

Round 8: Business Momentum and Near-Term Catalysts
Not only are Kate Spade’s recent comps better than its handbag competitors, they are some of the best numbers in the entire retail space.
Winner: Kate Spade

Round 9: Risks
The Q1 retail numbers once again highlight the fact that all retailers are facing an extremely risky macro environment in coming years.
Winner: Draw

Round 10: Valuation
Michael Kors stock seemingly has the lowest multiples, but earnings are trending in the wrong direction.
Winner: Kate Spade

And The Winner Is…
After taking six of the ten rounds, Citi declared Kate Spade the handbag champion of the market. The firm ranks Kate Spade as its top Buy-rated apparel and footwear stock. Citi has Neutral ratings on Michael Kors and Coach.

Disclosure: the author holds no position in the stocks mentioned.