Having lived in Japan the past few years, I couldn't possibly have missed the growing cachet of Coach
All of my Japanese Coach sightings weren't an accident. Coach still derives the bulk of its sales from the U.S., but like Tiffany
Coach's sales growth has been stunning, but the company has been able to power profit growth even further with an outsourced manufacturing model that capitalizes on the lower cost of making handbags and other goods in Asia. Kenneth Cole
Across the board, Coach has near-sparkling financials. The option grants to management are slightly higher than I'd prefer, given the ample cash compensation already being paid, but they aren't out of line, with dilution in the neighborhood of 3%. However, the company's stock-buyback program isn't doing shareholders any true favors, since the option dilution exceeds the shares repurchased.
After spending some quality time with the company's annual filing, I still come back to Coach's valuation. While I love its free cash flow generation and growth potential, I'm not willing to pay up for that growth. The company's continued success in Japan is hardly a sure thing. As much as Japanese consumers enjoy luxury goods, like all consumers, they can be fickle; growth could slow in short order as consumers move on to the next brand.
A slightly lower price, along with a cash dividend to share some of its robust free cash flow with shareholders, would cause me to take another look at Coach. For now, I'll sit on the sidelines and continue to watch the company's bags pass me by.
We've shouldered further Coach-related Foolishness: