Coach's Winning Results

Walking into a Coach (NYSE: COH  ) store or through certain sections of department stores leads me to one thought: "Man, leather smells good!" Coach emits quality and craftsmanship with every product it produces. In the "you get what you pay for" category, I'd rather spend a few more bucks for a Coach or Tiffany (NYSE: TIF  ) product (especially for a special occasion) than settle for Samsonite or Wilson Leather (Nasdaq: WLSN  ) goods.

I bought a Coach wallet five years ago, and it still looks fairly new. Admittedly, the wallet cost me more than I was thinking of spending, but it probably would have cost me more in the long run replacing an inferior product every year. Coach products are similar to the car-buying experience; if I want a car that looks good and will be durable, I will probably have to pay a premium.

Coach not only produces high quality products but also is a very well-run company; the company's fourth-quarter results bear witness to that observation. Coach's earnings of $0.34 per share exceeded the consensus estimate of $0.31 a share and widely beat last year's $0.16 per share number. The company is seeing strong sales growth in all of its channels and is seeing especially high demand in Japan. With sales up 39% for the quarter, the company also leveraged its strong cost controls to produce a staggering operating margin improvement (32.9% vs. 21.9% last year).

Although luxury item spending has been curtailed somewhat in the U.S. and Japan, Coach products give consumers an opportunity to buy quality, status-type items at reachable price points. The company not only produced great results for the fourth quarter, it also raised its guidance for 2005 to at least $1.68 per share (from $1.64) and predicted that sales will rise above $1.6 billion. Coach saw its July sales remain strong, which should be a positive indicator for fiscal 2005 first-quarter results.

Coach shares, which are trading at 24 times next year's earnings estimate of $1.68 per share, are attractive when compared with next year's growth rate that will probably approach 25%. With continued strong sales growth and margin improvement from the company, the shares should remain as appealing as its products.

Want to read more about Coach and its success? Try:

• Onward, Coach!, by Alyce Lomax
• Coach's Golden Q2, by Tim Beyers
• Coach's Success Story, by LouAnn Lofton

Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.