Overheard on Wall Street: Handbag Fatigue, VF Corp., Adidas

It might’ve been a shorter work-week for most Americans heading into the Fourth of July weekend, but that doesn’t mean Wall Street has slowed its pace. This past week the Street has been chopping it up as usual and Footwear News has the insight on some of its buzziest topics.

Read on for the scoop.

Handbag Fatigue: Michael Kors, Coach Inc. and Kate Spade New York

Heading into the usual retail uptick that accompanies holidays, analysts have expressed concern that handbag brands will not be among the companies to partake of the increase in retail traffic this weekend.

Cowen and Company analyst Oliver Chen said, in a July 2 note, that he’s going to continue to lower expectations for the faltering handbag market.

“[We are lowering] estimates on Kors, Kate and Coach as we feel existing challenges may continue into [the Fourth of July] holiday,” Chen wrote. “We see promo competition in U.S. department stores, peakish share risk at Kors, shift to [consumer electronics] spending, rise of athleisure [and] lack of inspiring handbag newness.”

Chen added that he views Kate Spade as best prepared to “weather [a] tougher backdrop on low distribution saturation and proactive pullbacks in promo.”

UBS Investment Bank analyst Michael Binetti also lowered his FY16 estimates for Coach, on June 15, and noted that he “remained concerned about current handbags industry trends.”

“We estimate that over 100 percent of industry capacity growth is coming from the discount-driven outlets—which could augur poorly for large brands’ overall pricing power,” Binetti wrote.

VF Corp.

The acquisition talk surrounding VF Corp. has not quieted even though the company is taking a little longer than market watchers expected to make its next move.

The latest discussions regarding a potential acquisition target have centered around Puma—rumored to be poised for a sale by its parent company Kering.

Citi Research analyst Kate McShane said, in a note on July 1, that she thinks the momentum for a potential deal could be building, based on several key factors.

“Foreign exchange rates remain highly favorable for a European acquisition [and] Citi’s European luxury retail analyst Thomas Chauvet recently highlighted a change in Kering’s strategic tone with regards to a potential divestiture of the company’s Sport & Lifestyle division,” McShane wrote.

Noting that while Puma “checks a lot of boxes [for] what [VF Corp.] would like to achieve with an acquisition,” McShane said she doesn’t view the firm as VF’s only viable option.

Other strong options, McShane said, include Quicksilver and Deckers Brands.

Macquarie Securities Group analyst Laurent Vasilescu offered up the same list of companies as potential targets when he spoke to FN back in March.

Adidas Group

UBS Investment Bank analysts Fred Speirs and Binetti upgraded Adidas to a “buy” driven by “greater conviction” on the firm’s Western Europe outlook and an improving view on the rest of the business.

The analysts released the findings of a survey of 3,000 European consumers that they administered in their quest to determine whether Adidas still has a home advantage in Western Europe.

Noting that Nike has outpaced Adidas in Western Europe over the last three years, Speirs and Binetti say the recent Adidas turnaround in Western Europe appears set to continue.

“We found that the Adidas brand has the strongest step-up in purchase intent, joint-leading brand perceptions alongside Nike, and high purchase loyalty,” Speirs and Binetti wrote.

Still, they note, Nike is leading the momentum with younger European consumers.

“Nike’s strong brand perceptions among 16-24 year-olds could become a significant long-term advantage if Adidas is unable to respond soon in our view,” the analysts cautioned. “Our analysis suggests Nike’s brand resurgence in Europe has been primarily driven by engagement with young consumers, who are even more important in the context of their high potential lifetime value”.

All things considered, Speirs and Binetti say they still think Adidas has time to aim for a catch-up.

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