Coach is starting off fiscal 2011 with a bang

COH reported earnings results for the first fiscal quarter of 2011 (the company’s fiscal year ends in June) before the market opened in New York yesterday morning.  The news was strong enough to push the stock up by about 12% that day.

the results

Sales for the quarter were $912 million, up 20% year on year.  Earnings per share were $.63, up 43% vs. the comparable period in fiscal 2010.  This was far ahead of the analysts’ consensus for the quarter, which was $.55.  Wall Street expects the company to earn about $2.75 for the full fiscal year, although I would imagine that number is even now being revised up.

Two “unusual” factors helped performance a bit.  The weak US currency turned sales in Japan from a 3% gain in ¥ ( impressive itself, in a market that’s shrinking) to a 14% increase in $.  Also, US department stores are restocking in anticipation of a better holiday season, so their orders were very strong.  Still, the COH figures were very good.

why I think COH may be an interesting stock

I used to know COH very well but have lost track of it over the past few years.  So I don’t know enough to have an opinion.  But I do have some impressions, all of them positive.  The long and short of it is that I think COH is positioned much better than most of its rivals to benefit from the way the luxury goos market is likely to play out over the next few years.

In particular:

If you’ve read my posts on the Bain Luxury Goods Worldwide Market Study, the consultancy’s conclusion is that the future of luxury goods is:




A factor that I didn’t mention in those posts is that Bain thinks the strongest category in luxury will be leather accessories.

COH’s roots, of course, are in leather.

It’s specialty is “affordable” luxury, which means younger and lower-priced than “traditional” European luxury brands.

It’s expanding very rapidly in China.

It is reviving its men’s business.

Its sales are predominantly from company-owned stores, both full-price and outlets, and it has a growing global online presence.  These are all hot spots of growth in the luxury goods industry.

COH is entering the European market, where I suspect that it will get a warm reception from newly value-oriented consumers looking for alternatives to much more expensive “traditional” luxury offerings.

Also: COH’s own market research shows its US consumers are more prone to purchase today than they have been in two years.

other plusses

COH isn’t just right place-right time.

The company has very strong, very innovative management.

COH has virtually no debt and over $700 million in cash on the balance sheet.  It has also spent $1.3 billion over the past year buying in about 10% of its outstanding shares.

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