Put Me In, Coach

Coach (NYSE: COH  ) has always been ahead of the times, with top-notch leather bags targeting consumers at many income levels. So why should we be surprised that Coach may be leading the charge again?

Though Talbots (NYSE: TLB  ) and Ann Taylor (NYSE: ANN  ) are closing stores and struggling to keep their heads above water, Coach delivered 11% net sales growth and 7% diluted earnings-per-share gains, driven by repurchasing more than 10 million shares, in the first quarter.

Even though Coach reaffirmed earnings guidance for the year, its stock has jumped more than 13% today as investors bag one of the few bright spots in retail these days. That's not to say Coach isn't struggling with the same "very difficult retail environment" that everyone else faces, but it's still planning to deliver 10% sales growth for fiscal 2009.

Double-digit sales growth is nothing to sneeze at these days. September same-store sales numbers were dreadful, with high-end retailers like Chico's FAS (NYSE: CHS  ) and Abercrombie & Fitch (NYSE: ANF  ) posting same-store sales declines in the double digits. And while Coach has an edge with its international presence (both China and Japan were big boosts in the company's 16% increase in direct-to-consumer sales), still, it posted a 0.6% increase in comps in North America.

Things aren't perfect at Coach. Indirect sales through department stores such as Nordstrom (NYSE: JWN  ) dropped by 3% for the quarter, reflecting the overall decline in mall traffic. Costs are rapidly outpacing sales, and a 23% increase in cost of sales and a 16% increase in selling, general, and administrative expenses helped drop the net margin by 350 basis points. It looks as though margins won't improve anytime soon, either, because the company piled up 19% more inventory during the quarter.

With that said, Coach looks like one of the few great buys in a downright depressing retail market. Coach has a trailing-12-month P/E of less than 10, versus the industry average of 13.4, and a history of outperforming the competition, with a five-year sales growth rate of 27%. Anyone delivering double-digit retail sales growth these days looks like a real hero, and Coach is positioning itself as a leader in an otherwise dim retail environment.

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Coach is a Motley Fool Stock Advisor pick. Looking for more advice in an all-consuming market? Give the Fool's newsletters a try via the 30-day free trial.

Fool contributor Colleen Paulson does not own positions in any of the stocks mentioned above. The Fool's disclosure policy is always coaching Fools to outperform the market.


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  • Report this Comment On October 29, 2008, at 3:27 PM, vmb63 wrote:

    Why do these fools (pun intended) insist on comparing retailers who are not direct competitors with Talbots????? Coach? Accessories is a small part of Talbots line while it's all Coach is.....

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