Jefferies Is Bullish On Handbags, Says Buy Coach And Michael Kors Ahead Of Earnings

While Coach Inc (NYSE: COH) is likely to already report positive comps, Michael Kors Holdings Ltd (NYSE: KORS) could deliver meaningful upside in the longer term, Jefferies’ Randal J. Konik mentioned in a report. He maintained Buy ratings on both companies and recommended purchasing their shares ahead of earnings.

Coach

Konik raised the price target to $53, saying that Coach was likely to report positive comps in F4Q. He raised the estimate for comps from +1.0 percent to +2.5 percent, pointing out that this would be the first positive comps from the company in more than three years, and expressed increased conviction in top-line growth.

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“Our channel checks showed a heightened degree of newness and innovation within COH products throughout the quarter, alongside very positive editorial/ media attention and strong reception by consumers. Elevated product coupled with an impactful marketing campaign points to growing demand for the brand, which is seeing a steady revival under the creative leadership of Stuart Vevers,” Konik wrote.

Margins would likely inflect in F4Q, with the op margin estimate at +300bp, backed by expected top-line growth, lower promotions, and strong cost controls as the company becomes more streamlined. The analyst said that Coach appeared to be on track for 20 percent operating margins in FY17.

Michael Kors

Konik maintained the price target at $75, saying that F1Q17 was likely to be “muted,” although the company may deliver meaningful upside in the longer term.

The analyst expects the company to report comps at -5 percent, with continued pressure in the wholesale channel. Elevated infrastructure investments and promotions may have resulted in margin contraction.

Konik expressed optimism regarding an improvement in the back half of the year, driven by:

• Acceleration in ecommerce, as the new CRM system is fully implemented
• New product initiatives
• Launch of wearable technology

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