We see Coach shares as fairly valued after second quarter results that were in line with our expectations.
efforts to elevate its core brand from leather goods to fashion design house continued to bear results in the second quarter in line with both our short-term and long-term forecast. Top-line growth in all reportable segments, coupled with increased penetration of higher price-point products and gross margin expansion, leave us comfortable that the company is gaining market share and that new sales are high quality and margin enhancing. Not surprisingly, the company maintained full-year constant currency guidance calling for double-digit earnings per share growth (although overall revenue guidance was lowered to a low-single-digit growth expectation from low- to mid-single-digits to account for currency movements). As we remain confident in both the results and the cadence of strategic initiatives, we see little change to our $39.50 fair value estimate other than the time value of money (which should add $1-$2 to our valuation) or our expectation for mid-single-digit average annual revenue growth and adjusted operating margin expansion from the high-teens to the 20% range over the next five years (roughly in line with the average adjusted operating margin over the last three years). That said, we feel that this potential growth trajectory is well understood and expected by the market and continue to view shares as fairly valued at current levels.
Bridget Weishaar is a senior equity analyst for Morningstar.
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