Sustainability And Advanced Technology Will Redefine The Footwear Industry

Key Takeaways

• Strategic integration and sustainable product innovation position the company to capitalize on demand for premium, eco-friendly materials and diversification into technical end-markets.
  
• Operational improvements and expanded cross-selling with a broad global customer base enhance resilience, profitability, and organic growth potential within the consolidating footwear and textiles industry.
  
• Persistent market uncertainty, regulatory demands, and reliance on technology adoption threaten growth and margin improvement unless new segments outperform and supply chain risks are mitigated.

Catalysts

Engages in thread manufacturing, structural components for apparel and footwear, and performance materials worldwide.

• The integration of OrthoLite, which is seeing strong technology adoption and market share gains in open-cell foam insoles, positions Coats to benefit from rising demand for premium, sustainable footwear components, supporting long-term revenue and margin growth as consumer, brand, and regulatory focus on sustainability increases.
  
• Exposure to fast-growing, higher-margin, and innovation-driven end-markets like athleisure, sports footwear, and future smart textile applications diversifies Coats' revenue mix, increases resilience against apparel sector cyclicality, and supports a larger addressable market for technical and performance materials, driving top-line and earnings growth.
  
• Ongoing investment in sustainable product innovation-evidenced by 73% YoY growth in recycled thread sales and proprietary advancements like OrthoLite's Cirql technology-positions Coats to capture premium pricing, improve net margins, and stay ahead as regulatory and consumer expectations for eco-friendly materials accelerate.
  
• Supply chain optimization and automation initiatives-including the consolidation of manufacturing footprint into three mega factories, disciplined procurement, and phased ERP implementation-are projected to deliver $20 million in recurring annual cost synergies by 2028, enhancing profitability and cash flow.
  
• Strengthened cross-selling capabilities and relationships with over 800 global footwear brands (combined Coats and OrthoLite customer base) create significant potential for organic revenue growth, leveraging both companies' reputations for quality, innovation, and sustainability in a consolidating industry where scale and technical capabilities matter.

Coats Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coats Group's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 12.4% in 3 years time.
• Analysts expect earnings to reach $237.8 million (and earnings per share of $0.11) by about September 2028, up from $83.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, down from 23.2x today. This future PE is lower than the current PE for the GB Luxury industry at 109.3x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.65%, as per the Simply Wall St company report.

Coats Group Future Earnings Per Share Growth

Risks

• Increased uncertainty in the U.S. market-including cautious customer ordering, softening orders since April, and concerns around U.S. consumer confidence and tariffs-creates a risk of revenue stagnation or decline in key segments like apparel and footwear if this persists or worsens.
  
• The footwear segment's recent growth is heavily reliant on technology adoption (open-cell foam insoles) and continued penetration within existing brands; if technological adoption slows, new innovations fall short, or brands delay rollouts, long-term revenue and margin growth could underperform expectations.
  
• Growing regulatory and consumer focus on sustainability may increase compliance costs, require further capital investment in new materials and processes, or disrupt legacy production, applying sustained pressure to net margins if not managed proactively.
  
• Ongoing global trade tensions, including increased U.S. tariffs and a dynamic tariff backdrop, may trigger further disruption, impact pricing, or elevate operational complexity and costs for Coats' international supply chains, weighing on earnings.
  
• Continued exposure to mature and commoditized apparel thread markets, as well as pressure from low-cost regional competitors, could constrain top-line growth and erode net margins unless new segments (technical threads, performance materials, new footwear adjacencies) deliver strong and sustainable earnings acceleration.

Valuation

• The analysts have a consensus price target of £1.192 for Coats Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.3, and the most bearish reporting a price target of just £1.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $237.8 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of £0.76, the analyst price target of £1.19 is 36.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.