Trendy handbag maker Coach (NYSE:COH) will report Q2 2007 financial results tomorrow, Jan. 23. Here's what you can expect to carry away from the report.

What analysts say:

  • Buy, sell, or waffle? Some 21 analysts cover Coach, and 16 say buy, buy, buy! Only five rate it a hold.
  • Revenues. That could be because revenues are expected to jump nearly 23% to $797.3 million.
  • Earnings. Similarly, profits are expected to rocket nearly 29%, coming in at $0.58 per share.

What management says:
Via a combination of sales through company-owned stores and department stores, Coach has been able to introduce and successfully market its handbags and accessories to women who make premium lifestyle choices. As Coach approached the Christmas season, it was feeling pretty confident and upped guidance for revenues to a 21% increase over last year, with earnings up 28%. Analysts have bought into these guidelines and think the holiday season may even have been a little bit better than that.

What management does:
Coach has been steadily increasing its sales, market share, and investor value for the past four years, and it's been rewarding management as well with grants of stock options. When management is able to achieve stellar performance, there's nothing wrong with compensating them for their efforts. Yet sometimes it can seem that awards can get out of whack with performance. Back in the fourth quarter, sales grew 23% while stock-based compensation awards grew 35%, which had the effect of dropping net margins.

Margins %

09/05

12/05

03/06

06/06

09/06

Gross

76.8

77.3

77.4

77.6

77.7

Op.

36.4

37.8

38.2

39.4

39.9

Net

21.6

24.2

24.6

23.4

23.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It's tough to argue with Coach's success. It's kept its costs in line with its revenues, so margins have been fairly consistent and generally improving, underscoring the markup it can impose on its products. The Coach brand is definitely popular, and that's leading the company to continue its expansion plans of adding seven new stores this quarter. It also authorized a new $500 million share buyback plan, having exhausted the current program in place. With shares trading at 22 times forward earnings, it might not be a poor investment of shareholder wealth, even if a good portion of it only happens to offset the dilution from generous stock options.

Competitors:

  • Kenneth Cole Productions (NYSE:KCP)
  • Liz Claiborne (NYSE:LIZ)
  • Tandy Leather (AMEX:TLF)
  • Wilson the Leather Experts (NASDAQ:WLSN)

Related Foolishness:

Coach has earned a four-star rating from Motley Fool CAPS, our new investor-intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.