coach

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22 October 2013

Americas/United States

Equity Research

Textiles

Coach, Inc. (COH) DECREASE TARGET PRICE

U.S. Business Deteriorates, Adding

Uncertainty. Lowering Estimates

Coach's U.S. business continues to deteriorate, with North America comps down

6.8% Y/Y, versus down (1.7%), 1%, and (2%) in the prior three quarters. While

underlying demand conditions in N.A. were challenging in the quarter across the

retail landscape, this result is a significant disappointment and suggests

additional risks going forwards. Increasingly, we consider Coach's brand

impaired in its home market, a result of years of underinvestment in store

merchandising (particularly in department stores) and increasing overreliance on

outlet center distribution expansion. While international growth remains robust in

China where comps were up double digits and sales were up 35%-plus Y/Y,

overall international sales are no longer enough to offset U.S. weakness as

Japanese sales were down 2% constant currency (in spite of 6%+ square

footage increase) and wholesale shipments were down Y/Y. On balance, the risk

profile is elevated, and initiatives to rehabilitate the business remain in the early

stages, suggesting a discount multiple is warranted. Our target price goes to $50

from $58.

North America Weakness The Big Concern. Coach's North America comps

were down 6.8% in the quarter, well below our estimates for down 2% and

the consensus range for flat to down 5%. This marks a significant

deterioration in comp performance which had been down 1.7%, up 1%, and

down 2% over the prior three quarters. This comes in spite of a significant

rollout of new product initiatives, including new footwear, apparel, and watch

product into stores over the past six months, which had been expected to

drive incremental traffic and brand interest.

Share price performance

46

51

56

61

66

Oct-12 Jan-13 Apr-13 Jul-13

Daily Oct 22, 2012 - Oct 21, 2013, 10/22/12 = US$54.17

Price Indexed S&P 500 INDEX

On 10/21/13 the S&P 500 INDEX closed at 1744.66

Quarterly EPS Q1 Q2 Q3 Q4 2013A 0.77 1.23 0.84 0.89 2014E 0.77 1.12 0.74 0.81 2015E 0.78 1.19 0.81 0.89

Financial and valuation metrics

Year 06/13A 06/14E 06/15E 06/16E EPS (CS adj.) (US$) 3.73 3.43 3.66 4.04 Prev. EPS (US$) 3.84 4.21 4.65 P/E (x) 14.5 15.8 14.8 13.4 P/E rel. (%) 86.9 100.3 104.1 104.0 Revenue (US$ m) 5,075.4 5,073.1 5,362.0 5,715.1 EBITDA (US$ m) 1,740.5 1,628.8 1,675.5 1,760.8 OCFPS (US$) 10.45 9.67 10.28 11.18 P/OCF (x) 5.5 5.6 5.3 4.8 EV/EBITDA (current) 8.3 8.8 8.6 8.2 Net debt (US$ m) -1,134 -571 -416 -304 ROIC (%) 83.73 50.76 47.79 48.03

Number of shares (m) 280.99 IC (current, US$ m) 1,278.07 BV/share (Next Qtr., US$) 8.8 EV/IC (x) 8.6 Net debt (Next Qtr., US$ m) -803.8 Dividend (current, US$) Net debt/tot cap (Next Qtr., %) -32.5 Dividend yield (%)

Source: Company data, Credit Suisse estimates.

Rating NEUTRAL* Price (22 Oct 13, US$) 54.18 Target price (US$) (from 58.00) 50.00 52-week price range 61.80 - 46.50 Market cap. (US$ m) 15,224.21 Enterprise value (US$ m) 14,653.19

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

Target price is for 12 months.

Research Analysts

Christian Buss

James Berkley

22 October 2013

Coach, Inc. (COH) 2

International Not Immune To Challenges. While international growth remains robust

in China where comps were up double digits and sales were up 35%-plus, overall

international sales are no longer enough to offset U.S. weakness as Japanese sales

were down 2% constant currency (in spite of 6%+ square footage increases) and

wholesale shipments were down Y/Y. Total international sales were down 0.5% Y/Y.

With Japan the most mature region in Asia and a bellwether for brand relevance across

Asia-Pacific, we view declining constant currency comps in the region (our model

suggests comps were down 7% in the quarter) as an area of concern, particularly given

domestic consumption benefits from currency deflation.

Careful Management Of Margins And Expenses Protect Earnings. In spite of the

sales shortfall, earnings were in-line with consensus as gross margin was in-line with

expectations at 71.8% (our 72.0%, consensus 71.9%) and SG&A spend was

significantly lower than anticipated at $505M versus our model for $548M. As a result,

SG&A rate of 43.9% was well below our expectations for 45.5%, with the delta

contributing $0.04 to EPS. Some of the SG&A benefit was due to a shift in timing of

marketing spend between quarters. We view expense controls and gross margin

control as a sign that Coach is maintaining their historical discounting and spending

disciplines, but note that full year margin guidance is now for 300bp of margin erosion

Y/Y to 28%, versus prior guidance for 30% as the company has some excess inventory

to clear and incremental expense associated with store expansion.

Initiatives To Rehabilitate Core North America Women's Business Remain In The

Early Stages. Given our concerns regarding brand health in North America, we are

looking for signs that initiatives to re-invigorate the brand are gaining traction. We

believe that efforts to increase penetration of non-accessory product remain risky and

possibly margin dilutive, and prefer to see initiatives focused on core handbags. To that

end, the recent hiring of a new design director is encouraging, as are reinvestment in

department store merchandising, remodel of factory stores, 2Q rollout of a new store

concept, introduction of capsule collections that coordinate across footwear,

accessories, and handbags, and a revised marketing strategy. With early traction not

yet evident, however, we believe caution remains in order.

Adjusting Estimates, Lowering Target Price. Following 1Q14 results, our FY14

comp, revenue, EPS estimates go to (6.0%), $5,073M and $3.43 from 0.0%, $5,361M

and $3.84. Our FY15 estimates go to 0.0%, $5,362M, and $3.66 from 2.0%, $5,797M

and $4.21. We are lowering our target price to $50 from $58, reflecting an equal

weighted average of comparable multiples ($46), a discounted cash flow model ($56),

and long-term growth driver ($49.)

22 October 2013

Coach, Inc. (COH) 3

1Q14 Overview

Coach reported 1Q14 North America comps, total revenue and EPS of (6.8%,) $1,151M,

and $0.77, versus our estimates for (2.0%,) $1,205M, and $0.76. In constant currency,

Coachs total sales rose 2%, with 9% growth across international markets (the Yen was a

drag on reported 1Q14 growth rates.)

Exhibit 1: 1Q14 Earnings Review

Coach, Inc

Estimate vs. Actual, Y/Y Comparisons

($ in millions except per share data)

Actual

1Q14 1Q14 Variance

%

Variance 1Q13 Variance

Y/Y

growth

Net sales $1,150.8 $1,205.2 ($54.4) -4.5% $1,161.4 ($10.6) -0.9%

Cost of Goods Sold 324.2 337.2 (13.0) -3.8% 316.2 8.0 2.5%

Gross profit 826.6 868.0 (41.5) -4.8% 845.2 (18.6) -2.2%

SG&A Expenses 504.9 547.8 (42.9) -7.8% 513.5 (8.5) -1.7%

Operating income 321.6 320.2 1.4 0.4% 331.7 (10.1) -3.0%

D&A 49.7 49.3 0.4 0.8% 36.1 13.6 37.5%

EBITDA 371.3 369.5 1.8 0.5% 367.8 3.5 0.9%

Interest Income (Expense) 1.6 0.8 0.8 NM 0.0 1.6 4405.6%

Other Income (Expense) 0.0 (1.0) 1.0 NM (2.1) 2.1 NM

Pre-tax income 323.3 320.0 3.3 1.0% 329.7 (6.4) -1.9%

Provision for income taxes 105.4 105.6 (0.2) -0.2% 108.3 (2.9) -2.7%

Tax Rate 32.6% 33.0% -0.4% 0bps 32.8% -0.3% 0bps

Net Income 217.9 214.4 3.5 1.6% 221.4 (3.5) -1.6%

Diluted EPS $0.77 $0.76 $0.01 0.9% $0.77 ($0.00) -0.2%

Basic Shares Outstanding 281.4 278.6 2.8 1.0% 284.6 (3.1) -1.1%

Diluted Shares Outstanding 284.5 282.6 1.9 0.7% 288.5 (4.0) -1.4%

CS Estimates FY12

Source: Company data, Credit Suisse estimates

22 October 2013

Coach, Inc. (COH) 4

Store Performance

Exhibit 2: Store Performance Chart

Coach, Inc



Actual FY12

1Q14 1Q14 Variance

%

Variance 1Q13 Variance

Store Performance

Comp store sales - North America -6.8% -2.0% -4.8% 240.0% 5.5% -1230bps

Tw o-year trend -1.3% 3.5% -4.8% -137.1% 14.7% -1600bps

New Store Productivity 56.9% 75.0% -18.1% -24.1% 54.3% 2.6%

Comp store sales - Japan -9.2% 1.0% -10.2% -1024.5% -1.4% -788bps

Tw o-year trend -10.6% -0.4% -10.2% 2791.3% -2.0% -859bps

Foreign Currency -20.5% -20.5% 0.0% 0.0% -1.6% -1892bps

New Store Productivity 65.0% 65.0% 0.0% 0.0% 65.0% 0bps

Comp store sales - China 12.5% 10.0% 2.5% 25.0% 10.0% 250bps

Tw o-year trend 22.5% 20.0% 2.5% 12.5% 35.0% -1250bps

New Store Productivity 67.0% 71.2% -4.3% -6.0% 59.6% 736bps

Comp store sales - Total Company -4.8% 0.2% -4.9% -2759.1% 4.5% -925bps

Tw o-year trend -0.3% 4.7% -4.9% -105.5% 11.6% -1182bps

New Store Productivity 67.0% 71.2% -4.3% -6.0% 59.6% 736bps

% Revenue from New Stores 8.0% 7.8% 0.2% 2.8% 8.3% -27bps

CS Estimates


North America: North America sales were down 1% Y/Y to $778M. Overall sales of

women's bags and accessories were disappointing. Weakness in women's bags and

accessories, and a decline in store traffic was partially offset by strength in footwear,

eCommerce, and Men's.

North America Direct: Sales decreased 1% Y/Y. The N.A. comp fell 6.8%, missing

our estimate for down 2.0%. The comp was driven in part by a decline in retail store

traffic impacting women's handbags and accessories. Coach opened 0 full price retail

stores, closed 1, and opened 5 factory stores including a dedicated Men's store during

the quarter, bringing the North America store count to 350 full price and 198 factory

stores. Coach expects to open ~20 new stores in FY14 including with a focus on

factory stores, close 15-20 full priced stores, and with ~20 expansions across both

channels. Coach expects net square footage growth of ~7% in FY14.

Legacy and Madison were key collections in 1Q. Coach saw favorable trends from

leather across all price segments (over 20% of handbag sales). The re-launched

footwear is featured in over 170 retail stores and was ~8% of business within those

stores vs. 4% last year.

North America Wholesale: POS sales at department stores and shipments into the

channel were down modestly Y/Y.

International: International sales (approx. 1/3 of COHs revenue) fell ~1% Y/Y to $365M,

9% growth in constant currency.

Japan: Comps were down ~9% (our calculation) and revenue was down 2% Y/Y on a

constant currency basis and down 22% in dollars due to the weaker Yen Y/Y. Coach

opened one new men's store in the quarter. Coach expects to open 5-10 new stores

(mostly dedicated men's stores.)

22 October 2013

Coach, Inc. (COH) 5

China: Sales increased 35%-plus Y/Y, driven by distribution and comps that were up

double-digits. Coach opened 6 new stores in the quarter, bringing the total count on

Mainland China to 132. Coach anticipates China sales to total $530M in FY14, as ~30

dual gender stores are opened across the country. Total square footage in China is

expected to grow ~25% in FY14.

Other Asia: Our model suggests that in 1Q Other Asia regions contributed ~$56M to

revenue. Coach operates 9 locations in Singapore, 27 in Taiwan, 10 in Malaysia, and

48 in Korea.

International Wholesale: Wholesale shipments increased with shipments declining

due to the timing of a Chinese holiday.

Margins

Exhibit 3: Margin Overview

Coach, Inc



Actual FY12

1Q14 1Q14 Variance 1Q13 Variance

Gross Margin 71.8% 72.0% -20bps 72.8% -95bps

SG&A as a % of Revenue 43.9% 45.5% -157bps 44.2% -33bps

Operating Margin 27.9% 26.6% 138bps 28.6% -61bps

Effective Tax Rate 32.6% 33.0% -40bps 32.8% -25bps

Net Margin 18.9% 17.8% 114bps 19.1% -13bps

CS Estimates


Gross margin fell 95bp Y/Y to 71.8% slightly below our estimate of 72.0%.

SG&A as a percent of revenue of 43.9% was down 33bp Y/Y.

As a result, operating margin was down 61bp Y/Y to 27.9% from 28.6% last year.

Balance Sheet

Exhibit 4: Balance Sheet Overview

Coach, Inc



Actual FY12

1Q14 1Q14 Variance

%

Variance 1Q13 Y/Y change

Inventories $637.2 $634.5 $2.7 0.4% $598.1 6.5%

Days Inventory 129 128 1.8 0 129 1

Inventory/Store $0.7 $0.7 $0.0 0.0% $0.7 -4.7%

Inventory/Square Foot (k) $231.5 $230.6 $0.8 0.4% $248.8 -7.0%

Payables $164.8 $145.6 $19.3 13.2% $133.0 23.9%

DPOs 46 39 6.9 17.8% 38 8

Net Cash $853.8 $981.2 -$127.4 -13.0% $737.5 15.8%

Net Cash/Share $3.00 $3.47 -$0.5 -13.6% $2.56 17.4%

CS Estimates


Inventories rose 6.5% Y/Y to $637.2M (days of inventory remained unchanged at 129

days.) This is compares to 4Q's 4.0% Y/Y growth.

22 October 2013

Coach, Inc. (COH) 6

Coach repurchased nearly 3.3 million shares of common stock at an average cost of

$53.17 spending ~$175M. At the end of 1Q COH had $1.2B remaining under its current

repurchase authorization.

Guidance

Coach provided FY14 guidance for:

Revenue to be flat to up low-single digits in CC or about even with last year in dollars

(vs. prior guidance for an increase in mid-single digits in CC or low single digit growth

in dollars) assuming the Yen is close to 100.

NA comp being forecasted at down high-single digits for the balance of FY14 (vs. prior

guidance of not building in an improvement from the negative low-single digit NA comp

seen in 4Q going forward in FY14 due to the transition to a lifestyle brand)

Gross margin is expected to be about 70%-71% vs. prior guidance for the 71%-72%

range, driven by increased factory clearance levels, a weaker Yen, rising labor costs,

and the amortization of inventory related to the Europe joint venture

SG&A rate is expected to post "modest dollar growth" given increased European

investments, marketing, and other brand transformation initiatives which were

"generally funded by the restructuring actions taken in 4Q."

Operating margin is expected to be ~28% vs. prior ~30% guidance

Tax rate is expected to be around 32% vs. prior 33% guidance

CapEx is expected to be around $280M driven by new store openings and geographic

expansion as well as investments in elevating store environment and in technology

Expect to open ~50 wholesale (down from ~70) and ~10 retail locations in the U.K.

and Europe

Share repurchases of ~$700M

Total square footage growth of 9% Y/Y in FY14

o North America square footage growth of ~7%

o China square footage growth of ~25%

o Japan square footage expected to increase slightly

22 October 2013

Coach, Inc. (COH) 7

Exhibit 5: Income Statement Coach, Inc.

Income Statement

($ in millions except per share, store, and sq. foot data)

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Sep12A Dec12A Mar13A Jun13A 2013A Sep13A Dec13E Mar14E Jun14E 2014E 2013A 2014E 2015E 2016E 2017E

Net sales 1,161.4 1,503.8 1,187.6 1,222.7 5,075.4 1,150.8 1,473.1 1,203.0 1,246.2 5,073.1 5,075.4 5,073.1 5,362.0 5,715.1 6,082.6

Cost of Goods Sold - Total 316.2 418.4 307.4 330.3 1,372.2 324.2 443.0 347.5 374.0 1,488.7 1,372.2 1,488.7 1,627.3 1,774.5 1,912.9

Total Gross Profit 845.2 1,085.4 880.2 892.4 3,703.1 826.6 1,030.1 855.5 872.2 3,584.4 3,703.1 3,584.4 3,734.7 3,940.6 4,169.7

SG&A Expenses 513.5 558.8 531.7 521.7 2,125.6 504.9 565.1 549.4 541.6 2,161.0 2,125.6 2,161.0 2,284.3 2,424.9 2,571.8

Operating income 331.7 526.6 348.5 370.8 1,577.5 321.6 465.0 306.1 330.5 1,423.3 1,577.5 1,423.3 1,450.3 1,515.7 1,598.0

Depreciation 36.1 40.8 38.8 47.3 163.0 49.7 50.8 52.0 53.0 205.4 163.0 205.4 225.1 245.1 264.9

EBITDA 367.8 567.4 387.3 418.1 1,740.5 371.3 515.9 358.1 383.5 1,628.8 1,740.5 1,628.8 1,675.5 1,760.8 1,862.9

Interest Income (Expense) 0.0 0.3 1.0 1.0 2.4 1.6 2.1 2.0 2.1 7.8 2.4 7.8 10.9 15.4 15.4

Other Income (Expense) (2.1) (1.5) (1.8) (1.0) (6.4) 0.0 0.0 0.0 0.0 0.0 (6.4) 0.0 0.0 0.0 0.0

Pre-tax income 329.7 525.3 347.8 370.8 1,573.5 323.3 467.2 308.1 332.6 1,431.2 1,573.5 1,431.2 1,461.3 1,531.2 1,613.4

Provision for income taxes 108.3 172.6 108.8 116.4 506.1 105.4 152.3 101.7 109.8 469.1 506.1 469.1 474.9 490.0 508.2

Tax Rate 32.8% 32.9% 31.3% 31.4% 32.2% 32.6% 32.6% 33.0% 33.0% 32.8% 32.2% 32.8% 32.5% 32.0% 31.5%

After-tax income 221.4 352.8 238.9 254.3 1,067.4 217.9 314.9 206.4 222.9 962.1 1,067.4 962.1 986.4 1,041.2 1,105.2

Net Income 221.4 352.8 238.9 254.3 1,067.4 217.9 314.9 206.4 222.9 962.1 1,067.4 962.1 986.4 1,041.2 1,105.2

Basic EPS $0.78 $1.25 $0.85 $0.90 $3.78 $0.77 $1.13 $0.75 $0.82 $3.47 $3.78 $3.47 $3.70 $4.09 $4.57

Diluted EPS $0.77 $1.23 $0.84 $0.89 $3.73 $0.77 $1.12 $0.74 $0.81 $3.43 $3.73 $3.43 $3.66 $4.04 $4.51

Pro-Forma Net Income 221.4 352.8 238.9 254.3 1067.4 217.9 314.9 206.4 222.9 962.1 1067.4 962.1 986.4 1041.2 1105.2

One-time charges (benefits after-tax) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

GAAP Net Income 221.4 352.8 238.9 254.3 1067.4 217.9 314.9 206.4 222.9 962.1 1067.4 962.1 986.4 1041.2 1105.2

GAAP Basic EPS $0.78 $1.25 $0.85 $0.90 $3.78 $0.77 $1.13 $0.75 $0.82 $3.47 $3.78 $3.47 $3.70 $4.09 $4.57

GAAP Diluted EPS $0.77 $1.23 $0.84 $0.89 $3.73 $0.77 $1.12 $0.74 $0.81 $3.43 $3.73 $3.43 $3.66 $4.04 $4.51- - - - -

Basic Shares Outstanding (M) 284.6 282.7 280.8 281.3 282.4 281.4 278.7 276.0 273.3 277.4 282.4 277.4 266.4 254.8 242.0

Diluted Shares Outstanding (M) 288.5 286.2 284.6 285.3 286.2 284.5 281.8 279.1 276.4 280.4 286.2 280.4 269.5 257.9 245.1

MARGINS

Revenue $1,161.4 $1,503.8 $1,187.6 $1,222.7 $5,075.4 $1,150.8 $1,473.1 $1,203.0 $1,246.2 $5,073.1 $5,075.4 $5,073.1 $5,362.0 $5,715.1 $6,082.6

Comps - NA 5.5% -2.0% 1.0% -1.7% 0.3% -6.8% -6.5% -5.5% -5.0% -6.0% 0.3% -6.0% 0.0% 2.0% 2.0%

EPS $0.77 $1.23 $0.84 $0.89 $3.73 $0.77 $1.12 $0.74 $0.81 $3.43 $3.73 $3.43 $3.66 $4.04 $4.51

Margins

Gross Margin 72.8% 72.2% 74.1% 73.0% 73.0% 71.8% 69.9% 71.1% 70.0% 70.7% 73.0% 70.7% 69.7% 69.0% 68.6%

COGS 27.2% 27.8% 25.9% 27.0% 27.0% 28.2% 30.1% 28.9% 30.0% 29.3% 27.0% 29.3% 30.3% 31.0% 31.4%

SG&A Ex-Rent 39.1% 32.0% 39.7% 37.5% 36.8% 38.8% 32.8% 40.1% 37.9% 37.1% 36.8% 37.1% 37.0% 36.8% 36.7%

Y/Y 171bp 63bp 101bp 177bp 129bp -33bp 75bp 45bp 35bp 37bp 129bp 37bp -15bp -15bp -15bp

2 yr 102bp 28bp 106bp 78bp 81bp 137bp 138bp 146bp 212bp 166bp 81bp 166bp 22bp -30bp -30bp

Net rental expense (% total revenue) 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.6% 5.6% 5.6% 5.6% 5.1% 5.6% 5.6% 5.6% 5.6%

Per store-rent expense (000) 65.7 81.9 64.8 65.7 272.7 59.5 81.8 65.9 67.6 275.3 272.7 275.3 277.6 280.3 283.4

SG&A 44.2% 37.2% 44.8% 42.7% 41.9% 43.9% 38.4% 45.7% 43.5% 42.6% 41.9% 42.6% 42.6% 42.4% 42.3%

Y/Y 207bp 99bp 144bp 219bp 168bp -33bp 120bp 90bp 80bp 72bp 168bp 72bp 0bp -17bp -15bp

2 yr 138bp 64bp 142bp 114bp 117bp 173bp 218bp 233bp 299bp 240bp 117bp 240bp 72bp -17bp -32bp

Absolute SG&A 513.5 558.8 531.7 521.7 2125.6 504.9 565.1 549.4 541.6 2161.0 2125.6 2161.0 2284.3 2424.9 2571.8

EBITDA Margin 31.7% 37.7% 32.6% 34.2% 34.3% 32.3% 35.0% 29.8% 30.8% 32.1% 34.3% 32.1% 31.2% 30.8% 30.6%

Operating Margin 28.6% 35.0% 29.3% 30.3% 31.1% 27.9% 31.6% 25.4% 26.5% 28.1% 31.1% 28.1% 27.0% 26.5% 26.3%

Pretax Income 28.4% 34.9% 29.3% 30.3% 31.0% 28.1% 31.7% 25.6% 26.7% 28.2% 31.0% 28.2% 27.3% 26.8% 26.5%

Effective Tax Rate 32.8% 32.9% 31.3% 31.4% 32.2% 32.6% 32.6% 33.0% 33.0% 32.8% 32.2% 32.8% 32.5% 32.0% 31.5%

Net Margin 19.1% 23.5% 20.1% 20.8% 21.0% 18.9% 21.4% 17.2% 17.9% 19.0% 21.0% 19.0% 18.4% 18.2% 18.2%

Y/Y GROWTH

Total Revenue 10.6% 3.8% 7.1% 5.8% 6.6% -0.9% -2.0% 1.3% 1.9% 0.0% 6.6% 0.0% 5.7% 6.6% 6.4%

COGS 10.7% 3.7% 5.7% 4.2% 5.8% 2.5% 5.9% 13.0% 13.2% 8.5% 5.8% 8.5% 9.3% 9.0% 7.8%

SG&A 16.0% 6.6% 10.6% 11.6% 11.0% -1.7% 1.1% 3.3% 3.8% 1.7% 11.0% 1.7% 5.7% 6.2% 6.1%

Net Income 3.0% 1.5% 6.2% 1.2% 2.7% -1.6% -10.7% -13.6% -12.4% -9.9% 2.7% -9.9% 2.5% 5.6% 6.1%

EPS 5.7% 4.8% 9.5% 3.4% 5.6% -0.2% -9.3% -11.9% -9.5% -8.0% 5.6% -8.0% 6.7% 10.3% 11.7%

EBITDA 3.9% 2.4% 4.3% 3.3% 3.4% 0.9% -9.1% -7.5% -8.3% -6.4% 3.4% -6.4% 2.9% 5.1% 5.8%

20142013


22 October 2013

Coach, Inc. (COH) 8

Exhibit 6: Balance Sheet Coach, Inc.

Balance Sheet

($ in millions)

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14


Assets

Current Assets:

Cash and Cash Equivalents 760.8 858.7 928.5 1,134.9 1,134.9 854.7 804.8 551.8 572.0 572.0 1,134.9 572.0 417.3 305.4 327.5

Receivables, Net 178.3 223.0 177.1 175.5 175.5 178.0 218.5 179.4 178.9 178.9 175.5 178.9 191.4 203.8 216.7

Merchandise Inventories 598.1 493.7 515.9 524.7 524.7 637.2 567.5 598.4 578.4 578.4 524.7 578.4 621.2 701.8 782.5

Other current assets 231.4 273.0 272.6 124.8 124.8 91.0 91.0 91.0 91.0 91.0 124.8 91.0 91.0 91.0 91.0

Total Current Assets 1,768.6 1,848.4 1,894.2 2,070.9 2,070.9 1,872.1 1,792.9 1,531.8 1,531.4 1,531.4 2,070.9 1,531.4 1,431.9 1,413.2 1,528.9

Property and equipment, Net 687.5 701.3 686.6 694.8 694.8 720.9 757.8 794.7 831.4 831.4 694.8 831.4 979.0 1,025.7 963.6

Goodwill & Intangible Assets 416.5 386.7 463.3 354.8 354.8 354.8 354.8 354.8 354.8 354.8 354.8 354.8 354.8 354.8 354.8

Other 278.9 243.4 228.0 129.2 129.2 257.4 257.4 257.4 257.4 257.4 129.2 257.4 257.4 257.4 257.4

Total Assets 3,151.4 3,179.7 3,272.1 3,531.9 3,531.9 3,487.4 3,595.2 3,570.9 3,607.3 3,607.3 3,531.9 3,607.3 3,655.4 3,683.3 3,736.9

Liabilities and Stockholders' Equity

Current Liabilities:

Trade Accounts Payable 133.0 152.6 137.1 178.9 178.9 164.8 166.5 158.9 206.7 206.7 178.9 206.7 233.1 258.9 284.2

Other Accrued Liabilities 575.6 594.1 455.2 543.2 543.2 542.1 550.2 558.5 566.8 566.8 543.2 566.8 601.6 638.5 677.7

Short-term debt 22.3 22.2 22.1 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Total Current Liabilities 730.9 768.9 614.5 722.5 722.5 707.4 717.2 717.9 774.0 774.0 722.5 774.0 835.3 897.9 962.4

Long-term Liabilities:

Long-term debt 1.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Deferred income taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other 425.4 427.7 413.2 399.7 399.7 400.9 403.1 389.4 376.7 376.7 399.7 376.7 355.0 334.6 315.3

Total Liabilities 1,157.3 1,197.1 1,028.2 1,122.7 1,122.7 1,108.8 1,120.7 1,107.7 1,151.3 1,151.3 1,122.7 1,151.3 1,190.8 1,233.0 1,278.2

Total Stockholders' Equity 1,994.1 1,982.6 2,244.0 2,409.2 2,409.2 2,378.6 2,474.4 2,463.2 2,456.0 2,456.0 2,409.2 2,456.0 2,464.6 2,450.3 2,458.7

Total Liabilities and Stockholders' Equity 3,151.4 3,179.7 3,272.1 3,531.9 3,531.9 3,487.4 3,595.2 3,570.9 3,607.3 3,607.3 3,531.9 3,607.3 3,655.4 3,683.3 3,736.9

Balance Check 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Operating Ratios 0 0 0 0 0

Receivables turnover 26.1 27.0 26.8 27.9 28.9 25.9 27.0 26.8 27.9 28.4 28.9 28.4 28.0 28.0 28.1

DSOs 13.8 13.3 13.4 12.9 12.6 13.9 13.3 13.4 12.9 12.9 12.6 12.9 13.0 13.0 13.0

Inventory 598.1 493.7 515.9 524.7 524.7 637.2 567.5 598.4 578.4 578.4 524.7 578.4 621.2 701.8 782.5

Inventory turnover 2.1 3.4 2.4 2.5 2.6 2.0 3.1 2.3 2.6 2.6 2.6 2.6 2.6 2.5 2.4

Days forward Inventory 128.7 144.5 140.6 145.7 128.6 129.5 147.0 144.0 148.0 130.7 128.6 130.7 128.4 133.1 137.6

Payables turnover 9.5 11.0 9.0 7.4 7.7 7.9 10.6 8.7 7.2 7.2 7.7 7.2 7.0 6.9 6.7

Days payable outstanding 37.9 32.8 40.2 48.7 47.6 45.8 33.8 41.2 49.7 50.7 47.6 50.7 52.3 53.3 54.2

Cash Cycle (in Days) 90.8 111.7 100.4 96.9 81.1 83.7 113.2 102.8 98.3 80.0 81.1 80.0 76.1 79.8 83.4

20142013


22 October 2013

Coach, Inc. (COH) 9

Exhibit 7: Cash Flow Statement Coach, Inc.

Cash Flow Statement

($ in millions)

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14


Cash Flows From Operating Activities:

Net Income 221.4 352.8 238.9 221.3 1,034.4 217.9 314.9 206.4 222.9 962.1 1,034.4 962.1 986.4 1,041.2 1,105.2

Depreciation 36.1 40.8 38.8 47.3 163.0 49.7 50.8 52.0 53.0 205.4 163.0 205.4 225.1 245.1 264.9

Provision for bad debt (1.5) 0.5 0.5 0.1 (0.5) 0.0 0.0 0.0 0.0 0.0 (0.5) 0.0 0.0 0.0 0.0

Stock Compensation Expense 28.5 30.5 30.2 31.3 120.5 31.7 32.2 32.7 33.2 129.8 120.5 129.8 137.7 146.2 155.1

Excess tax benefit from stock options (5.5) (5.3) (1.0) (15.1) (26.8) (3.2) (3.2) (3.3) (3.3) (13.0) (26.8) (13.0) (13.8) (14.6) (15.5)

Deferred Tax Expense 7.9 (3.2) (12.1) 0.9 (6.5) 0.0 0.0 0.0 0.0 0.0 (6.5) 0.0 0.0 0.0 0.0

Non-cash interest expense, Other 3.9 1.5 13.0 8.5 26.9 0.0 0.0 0.0 0.0 0.0 26.9 0.0 0.0 0.0 0.0

Loss (gain) on Disposal of Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Changes in Current Assets and Liabilities:

(Increase) Decrease in Receivables (4.3) (48.9) 42.6 (3.7) (14.2) (2.5) (40.5) 39.1 0.6 (3.4) (14.2) (3.4) (12.5) (12.4) (12.9)

(Increase) Decrease in Inventory (71.5) 97.8 (35.6) (29.3) (38.6) (112.5) 69.7 (30.9) 20.0 (53.7) (38.6) (53.7) (42.7) (80.7) (80.7)

Decrease (Increase)in other assets (23.3) 2.3 29.2 31.4 39.7 33.7 0.0 0.0 0.0 33.7 39.7 33.7 0.0 0.0 0.0

Increase (Decrease) in Other Liabilities 11.6 7.7 (10.1) (22.2) (13.0) 1.2 2.1 (13.7) (12.6) (23.0) (13.0) (23.0) (21.7) (20.4) (19.3)

Increase (Decrease) in Trade Accounts Payable (23.0) 22.2 (13.9) 45.0 30.4 (14.0) 1.6 (7.6) 47.8 27.8 30.4 27.8 26.4 25.8 25.3

Increase (Decrease) in Accrued Liabilities 21.9 129.1 (111.1) 58.9 98.9 (1.1) 8.1 8.3 8.4 23.7 98.9 23.7 34.8 36.9 39.2

Increase (Decrease) in Income Taxes payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Increase (Decrease) in Accrued occupance and current deferred rents

Increase (Decrease) in Deferred Rent

Cash Provided By Operating Activities 202.2 627.8 209.4 374.6 1,414.0 200.9 435.7 283.0 369.8 1,289.4 1,414.0 1,289.4 1,319.7 1,367.0 1,461.3

Cumulative 830.0 1,039.4 1,414.0 636.6 919.6 1,289.4

Cash Flows From Investing Activities:

Acquisition of interest in equity method investment 0.0 0.0 0.0 (93.9) (93.9) 0.0 0.0 0.0 0.0 0.0 (93.9) 0.0 0.0 0.0 0.0

Cash paid for property and equipment (56.3) (60.8) (42.8) (81.4) (241.4) (86.6) (87.7) (88.9) (89.7) (352.9) (241.4) (352.9) (372.7) (291.7) (202.9)

Purchase of Marketable Securities, Other (45.4) (105.9) (63.3) (20.6) (235.2) 0.0 0.0 0.0 0.0 0.0 (235.2) 0.0 0.0 0.0 0.0

Sales and Maturities of Marketable Securities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash (Used In) Provided by Investing Activities (101.7) (166.7) (106.1) (196.0) (570.5) (86.6) (87.7) (88.9) (89.7) (352.9) (570.5) (352.9) (372.7) (291.7) (202.9)

Cumulative (268.5) (374.6) (570.5) (174.3) (263.2) (352.9)

Cash Flows From Financing Activities:

Cash dividends paid to stockholders (85.8) (169.7) (84.3) 0.0 (339.7) (99.6) (98.6) (97.7) (110.5) (406.4) (339.7) (406.4) (444.5) (464.2) (441.1)

Payments for common stock (175.0) (225.0) 0.0 0.0 (400.0) (175.0) (175.0) (175.0) (175.0) (700.0) (400.0) (700.0) (770.0) (847.0) (931.7)

Payments on Long-term Debt (0.1) (0.6) (0.1) (21.6) (22.4) 0.0 (22.4) 0.0 0.0 0.0 0.0

Borrowings (payments) on short-term debt 0.0 (150.0) (200.0) (350.0) 0.0 (350.0) 0.0 0.0 0.0

Proceeds from issuance of common stock 23.3 5.0 31.2 20.9 80.4 25.6 25.6 25.6 25.6 102.5 80.4 102.5 112.8 124.1 136.5

Tax benefits related to compensation (20.1) 31.0 (27.3) 9.1 (7.4) 0.0 0.0 0.0 0.0 0.0 (7.4) 0.0 0.0 0.0 0.0

Cash (Used In) Provided by Financing Activities (257.7) (359.3) (80.5) 8.3 (689.1) (248.9) (398.0) (447.0) (259.9) (1,353.9) (689.1) (1,353.9) (1,101.7) (1,187.1) (1,236.4)

Cumulative (617.0) (697.5) (689.1) (646.9) (1,094.0) (1,353.9)

Impact of discountinued operations 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Change in Cash and Cash Equivalents (156.5) 97.9 17.7 186.4 145.6 (134.6) (50.0) (252.9) 20.2 (417.4) 145.6 (417.4) (154.7) (111.9) 22.1

Cumulative (58.6) (40.9) 145.6 (184.6) (437.5) (417.4)

Cash at Beginning of Period 917.2 760.8 858.7 876.4 917.2 1,062.8 928.2 878.2 625.2 1,062.8 917.2 1,062.8 645.4 490.7 378.8

Cash at End of Period 760.8 858.7 876.4 1,062.8 1,062.8 928.2 878.2 625.2 645.4 645.4 1,062.8 645.4 490.7 378.8 400.9

20142013


Companies Mentioned (Price as of 22-Oct-2013)

Companies Mentioned (Price as of 22-Oct-2013)

Coach Inc (COH.N, $54.18, NEUTRAL, TP $50.0)

Disclosure Appendix

Important Global Disclosures

I, Christian Buss, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

22 October 2013

Coach, Inc. (COH) 10

3-Year Price and Rating History for Coach Inc (COH.N)

COH.N Closing Price Target Price

Date (US$) (US$) Rating

14-Dec-10 57.61 70.00 O *

24-Feb-11 54.12 NR

07-Sep-11 55.54 64.00 O *

19-Oct-11 59.20 68.00

26-Oct-11 62.38 69.00

24-Jan-12 67.97 75.00

15-Mar-12 78.19 83.00

02-Apr-12 78.46 86.00

12-Jul-12 55.30 77.00

31-Jul-12 49.33 63.00

20-Sep-12 59.01 63.00 N

23-Jan-13 50.75 58.00

23-Apr-13 55.55 62.00

30-Jul-13 53.30 58.00

22-Oct-13 54.18 50.00

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N O T RA T ED

N EU T RA L

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S . and Canadian as well as European ratings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stocks total return relative to the average total return of the relevant country or region al benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiveness of a stocks total return potential within an analysts coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stocks total return relative to the average total return of the relevant country or regional benchmark.

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*An analysts coverage sector consists of all companies covered by the analyst with in the relevant sector. An analyst may cover multiple sectors.

22 October 2013


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (55% banking clients)

Neutral/Hold* 40% (49% banking clients)

Underperform/Sell* 15% (39% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Price Target: (12 months) for Coach Inc (COH.N)

Method: Our $50 target price is the average of (1) comparable multiples ($46); (2) DCF, or discounted cash flow analysis ($56); and (3) long-term growth scenario ($49).

Risk: Risks to our $50 price target for COH are macroeconomic slowdown, high rate of product obsolescence, foreign currency risk, and accounting risk related to the capitalization of long-term leases.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (COH.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (COH.N) within the past 12 months.

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Important Regional Disclosures

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22 October 2013


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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

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