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Summer 2010 end of internship presentation
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Retail Company Comparison
AMERICAN EAGLE
OUTFITTERS, INC.
COACH INC.
Darrin Nandhavan
Table of Contents
• Retail Industry Overview • Company Overview • Financials• Valuation and Ratios• SWOT Analysis• Stock Price History• Discounted Cash Flow• Questions and Comments
Retail Industry Overview
• Retail multinationals expanding to middle class outside of US
• Consumer spending remains fragile and depends on job creation and income growth
• Input costs increasing– Must increase prices to maintain
margins– Must cut costs by finding cheaper inputs
and suppliers• Companies discounting heavily to drive
sales
American Eagle Outfitters, Inc.
– Stock price: $12.49– Consists of AE brand, 77kids, Aerie and
Aerie Fit• Closed down MARTIN+OSA operations by end
of June
– Opening new stores outside of North America
– Significant market share in denim• Denim price points between competitors
Aeropostale and Hollister
– Targets15-25 year olds for AE and 2-10 year olds for 77kids
– Implements aggressive promotional strategies
Coach Inc. Overview– Stock Price: $37.28– Coach operates factory and Coach
stores– Expanding in Western Europe with
growing market in China and Japan• Partnership with Printemps and
Hackett Ltd.– Opened distribution center in China– Sweet spot of price points between
$298-$358– Poppy line, released in April extremely
successful – Launching Reed Krakoff Collection
American Eagle OutfittersSnapshot of Income Statement
American Eagle OutfittersSnapshot of Balance Sheet
American Eagle Outfitters Snapshot of Statement of Cash Flows
2Q09 3Q09 4Q09 1Q10 2Q10-200
-100
0
100
200
300
400
500
-18.89-36.36
-78.63
-119.81 -122.53
-23.77 -23.74 -30.35-49.07
-12.62
-14.16
80.91145.4
386.46
-24.88
Operating, Investing and Financing Activities (In Millions $)
Financing Investing Operating
American Eagle OutfittersMargins
Coach Inc.Snapshot of Income Statement
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11E0
200
400
600
800
1000
1200
136.3 140.8241
157.6 195.527 157.9
777.7 761.4
1065
830.7
950.5
826.5
Revenue and Net Income(In Millions)
Net Income Revenue
Coach Inc.Snapshot of Balance Sheet
Coach Inc.Snapshot of Statement of Cash Flows
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11E-600
-400
-200
0
200
400
600
270.2 240.5
363.7
205.1 181.7 179.7
-35.5 -20 -18.1
-219.6
82.3
-50
9.2
-32.4-236.9
-384-475.2
-170.4
Operating, Investing and Financing Activities(In Millions $)
Operating Investing Financing
Coach Inc.Margins
American Eagle Outfitters Valuation and Ratios
American Eagle
Abercrombie & Fitch
Valuation Ratios Market Cap. 2.68 Bn 3.21 Bn Enterprise Value 2.11 Bn 2.65 Bn Earnings per Share 0.75 0.54
Dividend and Yield 0.44 (3.60%) 0.70 (2.00%) EV/EBITDA 4.94 6.47 EV/Revenue 0.7 0.88 Trailing P/E 17.42 67.77 Forward P/E 11.55 14.61 PEG Ratio (5 yr expected) 1.02 1.01 Price/Sales (ttm) 0.89 1.04 Price/Book (mrq) 1.79 1.75 Mgmt. Effectiveness Return on Assets 8.92% 4.03% Return on Equity 10.75% 5.05% Balance Sheet Total Cash (mrq) 544.26 Mn 632.81 Mn
(TTM) American
Eagle
RetailIndust
ry
Quick Ratio
2.22 1.32 Current Ratio
3.23 1.89 Receiva
bleTurnove
r
59.68
5.70
Inventory
Turnover
6.12 0.52
Asset Turnove
r
1.56 0.22
Retail-Specific Ratios
COACH Inc. Valuation and Ratios
Coach Nike Valuation Ratios Market Cap. 11.24 Bn 34.42 Bn Enterprise Value 10.80 Bn 30.34 Bn EPS 2.33 3.86
Div & Yield0.60
(1.60%)1.08
(1.50%) EV/EBITDA 8.46 10.57 EV/Revenue 2.99 1.6 Trailing P/E 16.03 18.46 Forward P/E 12.69 14.94 PEG Ratio (5 yr expected) 0.99 1.37 Price/Sales (ttm) 3.1 1.81 Price/Book (mrq) 7.44 3.54 Mgmt. Effectiveness Return on Assets 28.57% 11.18% Return on Equity 45.92% 20.67% Balance Sheet
Total Cash (mrq)696.40
Mn 5.15 Bn
(TTM) Coach RetailIndust
ry
Quick Ratio
1.78 1.32 Current Ratio
2.46 1.89 Receiva
bleTurnove
r
33.13
5.70
Inventory
Turnover
2.83 0.52
Asset Turnove
r
1.43 0.22
Retail-Specific Ratios
American Eagle Outfitters SWOT Analysis
• Strengths– Retains significant market share in denim category– Strong brand awareness– Implemented aggressive stock buyback program –
6M shares YTD; 24 M remaining• Weaknesses
– Struggling for market share in women’s knit top category
– Weak comp sales in most recent quarter– Gross margins under pressure in 2011
• Threats– Struggle for market share in teen space with
Aeropostale’s high brand awareness and Hollister’s more promotional business
• Opportunities– Opening stores in Middle East
Coach Inc.SWOT Analysis
• Strengths– Affordable high quality leather products– More design innovative than competitors– Positive handbag comps – 22% more units sold– High brand awareness– $1.2 billion stock repurchase plan
• Weaknesses– Cannibalization – factory stores stealing sales
from Coach stores– Small men’s market share in global market
• Threats– Gross margin pressures in 2011
• Opportunities– Expansion into Western Europe– Initiative to expand men’s line
Stock Price History and Movement
20
40
60
80
100
120
140
160
180
S&P 5001071.69 0.00 0.00% High: 1303.04 Low: 666.79 Chg: -15.92%
(INDEX) S&P 500 - Price (INDEX) Coach Inc. - Price (INDEX) American Eagle Outfitters Inc. - Price
10/08 1/09 4/09 7/09 10/09 1/10 4/10 7/100
2
4
6
8
10
12
14S&P 500 - Volume
10/08
1/09 4/09 10/09
7/09 4/101/10 7/10
COACH vs. AMERICAN EAGLE vs. S&P500
(Index, 2 year period)
Discounted Cash Flow Analysis
American Eagle Outfitters, Inc.
• Neutral, Underpriced– Stock highly
undervalued; most undervalued in teen space – seen in EV/EBITDA measure
– Currently has high levels of inventory and low comps, trouble with operating margins
– Stock price will look up next quarter with decrease in inventory (back to school and holiday season)
– Solid balance sheet with little debt
Coach, Inc.
• Overpriced – More pricey but stock
has beaten S&P500; upward trend
– Many opportunities for growth abroad will increase market share and sales
– Margin pressure will be mitigated with Coach‘s new distribution center in China
– More innovative in design than competitors
– Solid balance sheet
Discounted Cash Flow Analysis
• American Eagle Outfitters Outputs (In Millions)
• Conclusion: Neutral• Enterprise Value:
$2,510.62• Fair Value of Equity:
$2,493.12• Fair Value Per Share:
$11.87 • Current Stock Price:
$12.49• Target Price: $9.50
• Coach, Inc. Outputs (In Millions)
• Conclusion: Neutral• Enterprise Value:
$13,804.50• Fair Value of Equity:
$13,775.00• Fair Value Per Share:
$45.16• Current stock price:
$37.28• Target Price: $31.61
Works Cited
• Yahoo Finance• Google Finance• FactSet CallStreet• Reuters.com• EDGAR SEC Filings• Lots of help from Amory and Thad
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