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STERNE AGEE RATES KORS NEUTRAL, COACH A BUY: Sterne Agee analyst Ike Boruchow initiated coverage of 12 specialty stores in the retail-apparel sector.
Michael Kors Holdings Ltd. was initiated with a “neutral” rating. While the analyst said, “We take nothing away from the impressive multiyear growth story here,” he did express concern over inventory growth continuing to outpace sales and that gross margin gains are slowing.
In comparison, accessories and handbag competitor Coach Inc. was given a “buy” rating. The analyst believes Coach has market share opportunities in Asia-Pacific, and noted “If Coach can attain a similar market share in China that it has captured in Japan (a 17 percent share), that would imply a $1.3 billion opportunity, or nearly $1 billion in incremental revenue.”
Coverage was also initiated at Fifth & Pacific Cos. Inc., Sterne Agee’s top pick, with a “buy” rating. While momentum for the turnaround is driven by Kate Spade, the analyst, who concluded that the “sum-of-parts analysis indicates under-valued assets,” noted that the “complexity of the business has resulted in an undervalued, misunderstood story.”
Gap Inc. was given an “underperform” rating. While 2012 was the year of the turnaround story, inventory is now building and difficult compares are on the way, suggesting that there might be some risks ahead in 2013.