Coach, Ralph Lauren, Tiffany: Is It Time to Buy Luxury Retailers?

Coach, Inc. (NYSE:COH) reported last quarter results that put sales at $1.16 billion, versus the same quarter last year of $1.05 billion. EPS also came in higher at $0.77, compared to $0.73 last year. Coach is seeing strengthening fundamentals and rising demand for its products, where the addressable market for women’s accessories in North America grew by 10% for its last fiscal quarter. Based on Coach’s recent strong performance we believe that other companies in the specialty retail sector will also perform well. These include companies such as Ralph Lauren Corp (NYSE:RL), Fifth & Pacific Companies Inc (NYSE:FNP), Estee Lauder Companies Inc (NYSE:EL) and Tiffany & Co. (NYSE:TIF).

RENAISSANCE TECHNOLOGIES

The weak economy and high unemployment has pressured specialty retailers—the Dow Jones U.S. Specialty Retail index is flat over the past twelve months, compared to the Dow Jones Industrial Average, which is up 10% over the same period. Yet, differentiated accessories have been showing strength over the past few months. Bain & Co. sees global sales of personal luxury goods up 10% in 2012, led by Asia, up 18% and the Americas, up 13%.

Coach has been focusing on growing its already dominant-position in North American women’s accessories, but outside of its key market, Coach has also doubled Coach Men’s segment revenues to over $400 million and grew sales in China over 64%.  The company also expects to grow global retail square footage 12% next year, with a focus on the U.S. and China. Citing new products and a new pricing strategy—which appeals to both high-end and value customers—S&P reiterated its $70 price target.

Ralph Lauren is looking to expand their product line to open itself up to more consumers. This includes offering handbags, footwear and denim. The company is also turning a focus to e-commerce and overseas expansion, opening fifteen new stores in China for 2012. Ralph Lauren, much like Coach, is also looking to implement a different pricing strategy that will expand its customer base—this should help drive next year’s 14% EPS growth.

Fifth & Pacific has recently been through a transition phase, having sold Liz Claiborne and Monet brands to J.C. Penney and Dana Buchman to Kohl’s. However, the company has retained its core brands—Juicy Couture, Kate Spade and Lucky Brand—and plans to grow via e-commerce expansion. The company’s Juicy Couture brand has been dragging it down however, but a turnaround from improvements in pricing and product mix is expected in the next two to three quarters—driving next year’s EPS growth to 300%.

Estee Lauder is still executing its four-year strategy that it implemented in 2009, where it plans to further lower its costs and expand non-U.S. sales. 2013 sales are expected to be up 7% as the company expands overseas and refocuses more on the higher margin skincare business. Estee is also seeing positive growth in its high margin travel retail segment, which should continue to grow with a rebounding travel industry.

Tiffany’s expects to see 2012 sales up 6%, and is supported by its retail expansion initiative—opening nineteen stores next year, but the company will experience some slight margin compression due to higher diamond and precious metal costs. Same store sales were up 1% for the first half of the year, being held down by an 11% decline in Japan due to store closures.

Of the specialty retailers, fund interest in Coach was the most notable, with Jim Simons as the top fund owner by shares in 2Q at 4 million shares—a 150% increase from 1Q. Meanwhile, Israel Englander also increased his stake, by over 500%, as well as tiger cub Patrick McCormack, by over 50%. Ralph Lauren saw Jim Simons and Lone Pine Capital upping their 1Q stakes by 190% and 45%, respectively. Fifth & Pacific also called Patrick McCormack a shareholder in 2Q, and Ken Fisher as its top fund owner by shares, with both fund managers taking new positions.

Specialty retail bulls, Lone Pine Capital and Jim Simons, were also top investors in Estee during 2Q, where Simons upped his 1Q stake by over 300%. Of all the companies, Tiffany’s saw some of the lowest interest from top name funds in 2Q, with the most notable being Select Equity Group, which took a new position that made the firm the top fund owner at almost 2 million shares—what exactly do hedge funds see in Tiffany’s? On the whole, fund sentiment was overwhelmingly positive for all the specialty retail companies we listed.

This group is expected to grow their EPS by at least 11% a year over the next half-decade, with Coach as the leader, sporting an expected CAGR of 15%. All the companies listed trade in line on a P/E basis, expect Coach. Coach trades at a trailing P/E of 16.5x, well below the average of the others, 24x. We see Coach as one of the more compelling picks, with Ralph Lauren another solid buy. Although Fifth & Pacific has some turnaround issues, the company should outperform in the longer-term. The company with perhaps the best growth potential is Estee, while Tiffany’s should benefit from a rebound in Japan.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!