Coach deal does little to solve brand's woes

Affordable luxury company Coach on Tuesday confirmed rumors that it would acquire fashion footwear brand Stuart Weitzman in a deal worth $574 million.

But while analysts acknowledged that Weitzman is a strong brand that could contribute to the company's overall sales, as well as provide synergies as Coach aims to boost its footwear business, it won't do much to solve core problems.

Coach has lost share to competitors such as Michael Kors and Kate Spade, falling out of favor with shoppers in recent years as a result of stale product, overdistribution and damaged brand equity from its high presence at outlet malls.

Source: Stuart Weitzman

"In our view, Coach may have been better served keeping its sole focus on its own transformation," Jefferies analyst Randal Konik wrote in a note to investors. While Konik has reported signs of progress, he says Coach still has a way to go.

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As part of its plan to revive U.S. sales, Coach is attempting to capture a more fashion-savvy customer and recover its pricing power. It's also hoping to evolve from a brand known for its handbags to one offering a "lifestyle" spanning multiple categories.

The latter strategy includes growing its footwear category, which currently accounts for about 10 percent of sales, according to Sterne Agee analyst Ike Boruchow.

"Under normal circumstances, a leading American handbag brand acquiring a leading footwear brand would be a reasonable strategy, but Coach may have too many balls in the air right now," Boruchow said.

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Stuart Weitzman's sales were around $300 million for the 12 months ended September. While that's nothing to scoff at, Wells Fargo analyst Paul Lejuez said "it will be difficult to make a meaningful impact on Coach's overall results," which ring in near $4 billion annually.

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Coach CEO Victor Luis said the company plans to expand Weitzman's international presence, and that it looks forward to "benefiting from the Stuart Weitzman team's expertise in footwear development."

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Stuart Weitzman currently operates 71 international stores and 47 U.S. stores. Its price tags are significantly higher than Coach's: Whereas a shopper could buy a pair of Coach pumps for less than $200, Weitzman's fall more in the $300-$400 range.

Coach share prices fell slightly Tuesday. Over the past year, its stock has dropped about 35 percent.