Cowen Upgrades Coach, Says Improved Marketing And Promos Are Driving Traffic

• Coach Inc COH shares have appreciated 7.3 percent over the past three months, after having fallen close to their 52-week low on September 28.
• Cowen’s Oliver Chen has upgraded the rating on the company from Market Perform to Outperform, while raising the price target from $35 to $38.
• While mentioning that the company has better products, an achievable guidance and robust margins, Chen expressed greater conviction that Coach would achieve total positive comp by Q4.

Analyst Oliver Chen mentioned that with “customer-centric product, wider gift offering, impactful marketing & new planned traffic driving promos,” Coach’s margins are likely to have stabilized at 16-17 percent, leading to free cash flow of $570 million.

Comp-store sales at the company’s retail & outlet are expected to benefit from a stronger footing, driven by Coach’s “transformation initiatives” associated with its products.

Stuart’s products now account for almost 100 percent of the assortment for both genders and channels for the holiday season, while the company’s new product is being well accepted due to its new designs and more appealing features, apart from other changes.

Coach has also worked to address product gaps for the holiday season, “with a wide assortments of gift items at key price points (incl. opening < $300) across genders, plus bolder gifting assortment across both channels, including 3x the investment in gift sets at outlet,” Chen stated.

Chen expects the company to boost comp improvement through improved marketing during Holiday 2015 and better optimized promotional events in 2016.

“We do like COH rolling out its new Modern Luxury stores globally, which we believe should aid upside and sustainability of comp improvement,” Chen added.