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Burberry And The Coach Effect

Fashion Inc.

by Lauren Goldstein Crowe
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Aug 22 2007 12:00am EDT

Burberry and the Coach Effect

Analyst Lisa Rachal at Redburn partners put out a note saying that Burberry shares had been unfairly affected by the recent poor performance of Coach Inc. stock. An article in Bloomberg explains that Coach shares had lost 12 percent of value this year, but are still overpriced compared to competitors, trading at 25 times earnings. The article also quotes a Goldman Sachs survey which said, "over half of Coach customers have no plans to buy a Coach handbag this year, up from 35 percent last year." Coach C.E.O. Lew Frankfort blames weakness in the U.S. handbag market. Rachal argues that the U.S. is too small a portion of Burberry's business to be painted by the same brush and that Burberry's bags sell at a more resilient, higher, price point.

Burberry executives seem to agree. The company has been buying back shares for the last two days.

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