Posts Tagged ‘ growth ’

Coach’s Lew Frankfort: “No Hard Landing In China”

October 25, 2011

Coach results were strong this morning coming in $0.03 ahead of the Wall Street consensus ($0.73 vs. $0.70 expectations). The drivers of the strong results are North American comp sales of +9.2% coupled with tremendous international growth. Coach is a global brand which is in the early stages of its growth cycle as distribution across Asia is hitting high gear. Over the past decade, Coach built a very strong business in Japan and has surpassed all the European luxury brands save Louis Vuitton (but this shouldn’t count as a brand in Japan it is really the Japanese women’s uniform).

Coach has one of the strongest business models in the world with 72% gross margins and very high operating margins (above 30%) as inexpensive handbags are made in China and sold around the world due to the tremendous brand equity in the “affordable luxury” space. Coach has no debt, and generates enough operating cash flows to self-fund all its own capital expenditure requirements, pay a dividend, buy back shares, and still generate excess cash for the balance sheet to boot. Coach’s growth is very high visibility as long as you believe that consumers in China, Asia Ex-Japan, Brazil, India, and Russia will want the product. The growth of the internet and global pop-culture is doing wonders for the growth rates of authentic global brands.

Coach is poised to earn well above Wall Street estimates this year. I forecast that the consensus $3.38 in earnings can easily exceed $3.50 and next year’s estimates of $3.89 are likely to be more like $4.10. Within 12 months time, if Coach can get back to its historical multiple range the shares have potential to trade to $75. Despite the recent rally from crisis lows, the shares look to have another 20% to go over the next year with a 1.5% dividend paid out along the way.

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Chipotle (CMG) – Best Restaurant Growth Stock

October 21, 2011



  • Chipotle beat the earnings consensus by $0.05 posting $1.90 vs. consensus of $1.85
  • Chipotle (CMG) is worth keeping an eye on because it is the fastest growth and highest valuation restaurant stock in the world.
  • Same store sales were 11.3% which is a tremendous result. Chipotle has been adept at continuing to move the lines in the stores quicker.
  • Chipotle likes its restaurant base so much it owns all of them – which is a very different model relative to McDonald’s and Yum Brands. Owning the restaurants requires more capital but enables Chipotle to capture all the profit from each unit and leverage corporate expenses easily when sales are robust.
  • Chipotle is accelerating their new restaurant openings. Growth still has a long runway in the US and has only begun in Europe and around the world
  • Next year earnings will likely be between $10-$12 per share
  • 2013 earnings will like be $14-$15 per share
  • While the valuation of the stock is very high, investors really believe in the growth of the CMG restaurant base so that every dip gets bought quickly.
  • The stock price is $330 but appears sustainable with the potential to move higher as overseas results demonstrate more growth avenues.
  • The Chipotle market capitalization is now above $10B.
  • The short interest is 10.5% of the float
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