Citi analyst Kate McShane recently pitted luxury handbag stocks Kate Spade & Co KATE, Coach Inc COH and Michael Kors Holdings Ltd KORS head-to-head-to-head in a 10-round “cage match” to see which stock offers the best opportunity for investors. Here’s a re-cap of the battle.
Round 1: Market And Competitive Landscape
All three companies are well-positioned in the affordable luxury segment of the handbag market, but Kate Spade’s relatively low penetration and strong growth makes it exceptional.
Winner: Kate Spade
Round 2: Consumer Demographics
Both Coach and Michael Kors have broad customer bases, but Michael Kors has been more successful in branching out into categories other than handbags.
Winner: Michael Kors
Round 3: Sustainable Competitive Advantage
Kate Spade has the advantage of learning from the brand-tarnishing mistakes that the other two companies have made (factory/wholesale).
Winner: Kate Spade
Round 4: Revenue/Square Footage Growth
Kate Spade’s comps and market share growth are on a whole different level than competitors.
Winner: Kate Spade
Round 5: Operating Margin Direction And Opportunity
Kate Spade is the only name of the three with expanding operating margins.
Winner: Kate Spade
Round 6: ROIC
Although Kate Spade has plenty of room to improve ROIC, the company has a lot of ground to make up to top Michael Kors.
Winner: Michael Kors
Round 7: Shareholder Friendliness
Kate Spade is focusing on reinvesting in its business, but Coach has the longest history of the three when it comes to returning cash to shareholders.
Winner: Coach
Round 8: Business Momentum And Near-Term Catalysts
Not only are Kate Spade’s recent comps better than its handbag competitors, they are some of the best numbers in the entire retail space.
Winner: Kate Spade
Round 9: Risks
The Q1 retail numbers once again highlight the fact that all retailers are facing an extremely risky macro environment in coming years.
Winner: Draw
Round 10: Valuation
Michael Kors stock seemingly has…
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