We have recently initiated coverage on Coach, Inc. (COH), one of the leading designers and marketers of fine accessories and gifts, with a Neutral recommendation and a target price of $35.00, as we anticipate it to perform in line with the industry.

Headquartered in New York, Coach offers lifestyle products, which include handbags, women’s and men’s accessories, footwear, jewelry, wearables, business cases, sunwear, travel bags, fragrance and watches.

Coach boasts a proven strategy of investing in stores to enhance store sales productivity through product innovation, compelling pricing strategy, new merchandise assortments, and a cost-effective global sourcing model, which should help drive comparable-store sales and operating margins in the long term.

Coach’s long-term growth drivers include expansion of its global distribution model and entering into under-penetrated markets. Management believes that there is room for about 500 retail stores in North America, and about 180 locations in Japan. Coach is also investing in rapidly growing emerging markets, such as China to increase its brand awareness.

A healthy balance sheet with a significant cash balance and negligible debt load, positions the company to drive future growth. Furthermore, we appreciate Coach’s approach of slowing down the pace of new store openings in a weak consumer environment.

Although a well-managed company, we remain concerned about the lower demand for premium handbags and accessories Incorporatedreased competition, and fashion obsolescence.

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