Morgan Stanley Calls Coach "Fading Brand", Downgrades to Underweight

In a report published Thursday, Morgan Stanley analyst Kimberly Greenberger downgraded

from Equal-weight to Underweight and announced a $36.00 price target. Greenberger emphasized that Coach is a "fading brand" with brand re-positioning taking three to five years. With management's weak fourth quarter and FY15 guidance, Morgan Stanley estimates that women's handbag market share will slide 800 bps year-over-year to approximately 17 percent for the FY14. The analyst wrote, "We believe COH's product strategy is sound, but remain cautious on over-distribution through factory outlets. Plans for brand elevation will likely take years to play out." Morgan Stanley added that rising cost pressures, falling free cash flow, increasing supplier power, brand transformation expenditures, and an elevated CapEx from the new headquarters are heavily weighing on market share and draining cash. Morgan Stanley lowered fourth quarter estimated EPS from $0.68 to $0.54, in-line with management's guidance. The analyst drastically lowered FY15 EPS from $2.60 to $0.57, expecting gross margins to fall 40 bps year-over-year and FY15 sales -5 percent on a -15 percent comp. Shares of Coach closed at $44.65 on Wednesday, and is currently down approximately 2.1 percent at $43.73.