In these days when the Street is worrying over sagging consumer spending, when you can pick up fashionable leather in places as base as -- horrors -- Target (NYSE: TGT), you wouldn't think that there would be a lot of demand for the $300 backpacks and other high-end skins at Coach (NYSE: COH). But then, you'd be wrong.
Last quarter, the firm sold $344 million worth of fancy gear, up 33% from the prior-year quarter. That's not quite as saucy as last quarter's 39%, but it's pretty robust.
First-quarter earnings were $0.35 per share, 59% better than last year's. Whew. If you're glancing through the filing looking for "gotcha" moments, they're going to be tough to find. Comparable store sales were up a healthy 15.1%, with the retail segment up 16.8%. Gross margin improved an incredible 2.3%. Operating costs were down 2.4%. That, my friends, is how you turn decent sales gains into amazing earnings.
In fact, even now, Coach looks an awful lot like a rule breaker. As Fool food 'n' growth guru Rick Munarriz likes to point out, this company spun off from one of those so-called boring -- but lucrative -- companies, Income Investor pick Sara Lee (NYSE: SLE). (Note to self: keep eye on spinoffs.)
It defied conventional wisdom to carve out a niche that exudes style and status, yet isn't completely unaffordable like Louis Vuitton. Like another Fool favorite, Chico's FAS (NYSE: CHS), Coach appeals to a clientele that seems relatively well-insulated from economic vagaries that might cramp spending for the likes of the lowlier -- like me. Where's the competition? Wilsons (Nasdaq: WLSN)? Please. Burberry? Not quite. There isn't much, which means Coach is free to keep exploiting its profitable niche.
With beautiful balance sheets -- OK, so it's not a typical rule breaker -- predictions for 30% earnings growth next year, an increasing foreign presence, and a track record for knocking the cover off the ball, Coach looks like a great stock to stash, even if you didn't get in on last month's fire sale.
For related Foolishness:
David Gardner has his eye on another luxury-goods upstart for his growth newsletter. Take a free trial of
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Seth Jayson prefers to cart his stuff around in an old Planet of the Apes lunch box. At the time of publication, he owned shares in Chico's, but no other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.
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