2 Great Reasons To Own Coach Shares

Coach Inc COH continues to benefit from “competitor's missteps,” BlueFin Research Partners’ Rebecca Duval said in a report. She added that while the company seems to be gaining share in the handbags market, it also stands to benefit from a possible buyout of Kate Spade & Co KATE.

In 2016, Coach announced the closure of 25 percent of its wholesale outlets (around 250 stores) and said that it would discontinue providing margin support to the big box stores, as these were heavily dependent on constant promotions to attract shoppers.

“These were bold moves for any retailers and one which we think reflects management’s confidence in their ability to re-position the product line to be more of an aspirational brand,” Duval commented, while maintaining a Market Outperform rating on Coach, with a price target of $46.

Gaining Share In Handbags Market

Coach has undertaken the pains of repositioning its brand, including corporate restructuring, store closures, store/channel remodels and cutting back on promotional activity.

“Now, with the strategic reset in place and paying dividends, we think further gains are going to come from the missteps that some of its competitors are faced with,” the analyst wrote. This includes Kate Spade and Michael Kors Holdings Ltd KORS.

While Coach seems to be gaining share in the handbags market at the expense of Kate Spade, Michael Kors is in the process of restricting its own business and continues to struggle.

Kate Spade Buyout

Although Coach buying Kate Spade is mere speculation at the moment, both retailers would gain from significant leverage, “with many shared services including vendors and raw materials,” Duval noted.

“Aside from the sourcing cost savings, KATE’s ready-to-wear success could be the real opportunity in the merger of the two as COH has had limited success with its entry into ready-to-wear, but is an expansion path high on their list of growth opportunities,” the analyst mentioned.

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