Coach, Inc. (NYSE:COH) has had quite a sluggish share-price performance since the beginning of the year, moving up by only 3.6%, much lower than the S&P 500’s return of 13.8%. Still, it is in the portfolios of many famous investors including Joel Greenblatt, Chuck Royce and Paul Tudor Jones. Let’s take a closer look at this luxury retailer to determine whether or not Coach, Inc. (NYSE:COH) is a good buy at its current trading price.
Coach, Inc. (NYSE:COH) experienced the highest growth in China
In the third quarter 2013, Coach, Inc. (NYSE:COH) experienced decent growth in both its top line and bottom line. Revenue increased from $1.18 billion in the first quarter last year to $1.19 billion this year, while the net income rose 6.2%, from $225 million to $238.9 million. Moreover, its EPS grew at a higher rate, at 9%, from $0.77 per share to $0.84 per share, thanks to the reduction in the number of total outstanding shares compared to the same period last year.
Coach, Inc. (NYSE:COH) seems to have a lot of growth in the most populated country in the world, China. Its total sales in China increased by as much as 40%, with double-digit growth in comparable-store sales. Coachexpected to generate around $425 million in revenue in China within this year. According to Red Luxury, Coach, Inc. (NYSE:COH)’s success in China was due to three main reasons. First, Coach positioned itself in the “accessible luxury market,” with its price 50%-75% lower than the top luxury brands. Thus, it could weather the economic downturn. Second, as a third of the luxury market in China was for men, Coach has grabbed the opportunity to execute the model of dual-gender sales, opening more men’s stores in China. Last but not least, the retailer has multi-channel distribution strategy. It not only sells its products through its retail stores, but also through factory outlets and department stores.
What makes me interested in Michael Kors Holdings Ltd (NYSE:KORS) is its capability to grow in Europe. In the past three years, its retail net sales in Europe came in at $101.7 million with the comparable-store sales growth of 51.3%. In North America and Japan, Michael Kors Holdings Ltd (NYSE:KORS) also had double-digit comparable-store sales growth, of 39.6% and 14.7%, respectively. Indeed, Michael Kors Holdings Ltd (NYSE:KORS) has been doing quite well with its operation in Europe, with its marketing spending to build the brand, raising shoppers’ awareness. In the next few years,Michael Kors Holdings Ltd (NYSE:KORS) wanted to produce around $500 million in sales in more than 100 stores in Europe.
Both Coach and Michael Kors have managed to deliver a significantly high return on invested capital. In the past 12 months, Michael Kors generated as high as 52.11% in return on invested capital. Coach’s ROIC was a bit lower, at 50.34%. Their peer, Tiffany & Co. (NYSE:TIF), the premium jeweler, was the least profitable, delivering only 12.23% in its return on invested capital. Both Coach and Michael Kors’ ROIC are much higher than the average single-digit return of the retail industry, at around 8%-9%.