Just in April, NY Magazine fashion blog The Cut called Coach, Inc. (NYSE:COH) more “mass-market” than its own Reed Krakoff brand, noting that Krakoff’s decidedly pricey and high end wares brand didn’t fit with Coach anymore. The article made it sound like mass-market was a dirty word.
Some back-story is in order. Reed Krakoff is the Executive Creative Director at Coach, Inc. (NYSE:COH) who is leaving to focus on his eponymous brand of luxury accessories and apparel. He helped CEO Lew Frankfort build the brand into the international apparel and accessories success story it is. Krakoff will be succeeded by Stuart Vevers.
Interestingly, The Cut surmises the move of Vevers to Krakoff’s position may be a signal of more expansion into the European and Asian markets as Vevers headed up trendy accessories line Loewe, well known in those regions.
Reed Krakoff’s high-end brand is being shopped by Coach, Inc. (NYSE:COH) as it’s been a money losing brand according to The Wall Street Journal. Coach, Inc. (NYSE:COH) is, meanwhile, morphing into a lifestyle (is that code for mass-market?) brand with more apparel like rival Ralph Lauren Corp (NYSE:RL).
The WSJ article noted that Coach, Inc. (NYSE:COH) has lost customers to Michael Kors Holdings Ltd (NYSE:KORS) and privately held Tory Burch. Coach is also losing ground to kate spade, owned by Fifth & Pacific Companies Inc (NYSE:FNP).
Has the easy money been made?
Last year, Michael Kors Holdings Ltd (NYSE:KORS) was the name getting all of the Street’s love as the best performing IPO of 2011-12. The stock has performed well, it’s up 62.49% over the last year, but not a skyrocket like Fifth & Pacific Companies Inc (NYSE:FNP), up over 155% in the same time frame.
Maybe, it has just lost its IPO buzz, now that most of the insider selling by CEO John Idol and founder Michael Kors Holdings Ltd (NYSE:KORS) is over and short interest has declined to 2.40%, quashing the profitable short squeezes of yore.
The days of 70% and 56% earnings surprises are probably over and now it comes down to the day to day for Michael Kors Holdings Ltd (NYSE:KORS). At a trailing P/E of 32.40 and an EV/EBITDA of 18.12, has the easy money been made?
Analysts still like the name and keep raising the median price target, now at $74, up from $65 just in January and give it a 28.73% five year EPS growth, more than twice what analysts foresee for Coach at 11.80%. In Michael Kors Holdings Ltd (NYSE:KORS)’ favor is its low PEG of 0.87 and no debt.
Asia has been the driver of profits for both Coach and Kors, as their accessories, particularly bags, are recognizable from across a room — very much an advantage in their largest markets in Asia, where status can’t be flaunted with flashy cars and big houses. In Q2 2013, Chinese sales rose 40% yoy for Coach while North American sales barely rose 1%.
Coach is much more the value name at a 15.95 trailing P/E, fairly low for a retail stock, and it offers a yield of 2.30% at a 32% payout ratio. The company raised the yield 13% in April.
Coach is only up 3.27% this last year, yet analysts have a $65.00 median price target for a 10% upside from its July 12 close of $59.00. Coach has all its succession ducks in a row now with Victor Luis, who spearheaded its Asian expansion, to take over from Lew Frankfort as CEO in 2014. Frankfort will stay on as Executive Chairman.
Is mass-market a dirty word for retailers?
Mass-market shouldn’t be a dirty word for Coach as its outlets make the brand affordable for the aspirational. Even Michael Kors has a lower price point line of men and women’s clothes, Michael, for the aspirational with more style than money.
