Coach's Long-term Prospects Look Bright With Kate Spade Buyout

Coach, Inc. (NYSE:COH) recently concluded the buyout of Kate Spade & Company, which designs and markets accessories and apparel under two multichannel lifestyle brands – kate spade new york and Jack Spade New York. The merged entity with its diverse portfolio is expected to realize about $50 million in synergies. This $2.4 billion acquisition marks another significant step by Coach toward becoming a multi-brand company.

Earlier, the company had acquired footwear maker Stuart Weitzman in a deal worth approximately $574 million. We believe Coach looks much more disciplined in its approach to adapt to the changing retail landscape, and these buyouts undoubtedly will provide a competitive platform.

As one of the leading American marketers of fine accessories and gifts, Coach boasts a proven strategy of investing in stores to enhance sales output through product innovation, a compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. We believe that these strategies will help drive comparable-store sales and operating margins in the long term.

The company’s growth drivers include expansion of global distribution model and venturing into under-penetrated markets. Coach is undergoing a brand transformation and introducing modern luxury concept stores in key markets. Additionally, it is aggressively expanding e-commerce platform. Management continues to project double-digit growth in earnings per share during fiscal 2017. Further, it expects operating margin between 18.5% and 19% for the fiscal year.

We noted that shares of this Zacks Rank #3 (Hold) company have surged 18.4% in the past three months, and has comfortably outperformed the Zacks categorized Textile-Apparel Manufacturing industry that advanced 4.7%.

Interested in the Retail Space, Check These

If you are interested in the retail space you can consider stocks such as G-III Apparel Group, Ltd. (NASDAQ:GIII) , Tilly's, Inc. (NYSE:TLYS) and The Children's Place, Inc. (NASDAQ:PLCE) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel has a long-term earnings growth rate of 15%.

Tilly's delivered an average positive earnings surprise of 120.4% in the trailing four quarters and has a long-term earnings growth rate of 13%.

Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.

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