Foolish Forecast: Unzipping Coach

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Coach (NYSE: COH), a $12 billion powerhouse of pocketbook-making prowess, reports on its fiscal Q2 2006 earnings before the market opens tomorrow. Here's a quick rundown of what you'll need to know to put tomorrow's news in context.

Wall Street wisdom:

• General consensus. Eighteen analysts follow Coach, of whom 13 rate the company a "buy," with the rest voting "hold." No one seems to think you should sell Coach.
• Revenues. Analysts will be looking for Coach to report $650 million in sales tomorrow, a 22% increase over the year-ago quarter.
• Earnings. Analysts predict $0.44 in profits per share, a 29% increase over the year-ago quarter.

Margin watch:
To get a better idea of the context for tomorrow's earnings and how they play into the company's long-term trends, watch how its margins develop on a "rolling basis." Here's how Coach's margins have been shaping up over the past six consecutive trailing-12-month periods.

Margins	7/04	10/04	1/05	4/05	7/05	10/05
Gross	74.9%	75.4%	75.8%	76.4%	76.6%	76.8%
Op.	33.4%	33.5%	34.9%	35.5%	36.2%	36.6%
Net	19.8%	19.9%	20.9%	21.5%	22.7%	23.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Looks like it's full steam ahead at Coach, with margins moving upwards on all three fronts: gross, operating, and net.

Valuation:
Coach's trailing P/E of 29 looks a little worse than its actual price-to-free cash flow ratio of 26. But even if the company continues to grow at analysts' projected rate of 20% per year, this is one pricey handbag.

Competitors to keep an eye on:
There aren't many, and even fewer who are publicly traded. Wilsons The Leather Experts (Nasdaq: WLSN) and Polo Ralph Lauren (NYSE: RL) offer some competition, however.

Fool contributor Rich Smith does not own shares in any company named above.