Coach has a comeback in its future, according to a quarterly survey conducted by Baird Equity Research. Analyst Mark Altschwager upgraded the American handbag and accessory company based on survey findings that showed a potential sales turnaround after 12 quarters of comparative sales declines. Altschwager expects the Stuart Vevers-headed brand’s sales to turn positive towards the end of this year and sees growth remaining in the positive low single-digit range through 2017, which is not bad for a brand whose annual sales had fallen by nearly $1 billion by 2015.
Much of Coach’s disappointing sales figures in the past several years have coincided with a general decline in its brand’s appeal, thanks in large part to market saturation of its “C” logo on both authentic and counterfeit goods. The brand has been trying to claw back the premium tag it lost due to an expansion spree that flooded the market with its bags under the watcher of former creative director Reed Krakoff.
Coach is working to restore its cachet and win back customers from Kate Spade & Co. and Michael Kors Holdings Ltd., in light of mounting competition and previously sluggish demand and heavy discounting by cutting back on promotions and appointing well-known fashion designer Stuart Vevers as its creative head. The company also brought on board Victor Luis, who became CEO just over two years ago, after successfully leading Coach’s Asian expansion. Luis aims to restore the now 75-year-old brand’s upscale aura, and it appears to be working, albeit slowly.
According to a new survey, the brand’s efforts appear to be working, as it has shown recent signs of strength and a possible turnaround. Altschwager and fellow Baird Equity Research analyst Drew North upgraded Coach from neutral to Outperform while raising the price target from $45.00 to $50.00. Moreover, Baird surveyed 500 women in the U.S. regarding handbag preferences. 43% responded “yes” or “maybe” when asked if they would purchase a Coach handbag in the next three to six months. Per Altschwager, "We believe our survey points to stronger purchase intent for Coach — especially in the outlet channel — adding confidence to the sustainability of Coach's comp recovery."
So far this year, the brand has performed well. For the January - March quarter, the brand’s turnaround was witnessed in its North American segment, and strong growth seen in its International segment.
Acccording to the Baird survey: Big picture, we’ve been warming to shares in recent quarters as the company has exhibited progress on brand transformation plans but have been waiting for evidence of more broad-based sales improvement (or cheaper valuation) before raising our rating. We believe our survey points to stronger purchase intent for Coach – especially in the outlet channel – adding confidence to the sustainability of Coach’s comp recovery.