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It's time to dress up our "11 O'Clock Stock" picks. And there's no better choice than "the little black dress" of retail -- Coach (NYSE: COH).

In an industry known for fickle and fleeting tastes, Coach stands out by consistently appealing to generations of discerning shoppers. With its rich history, reputation for quality craftsmanship, and timeless designs, Coach practically invented the idea of "affordable luxury" in the U.S.

Still, lore and high regard only count for so much: Investors don't want frivolous trophy stocks; they want results.

Fast facts on Coach

Market Capitalization

$11.5 billion



Revenue (TTM)

$3.6 billion

Earnings (TTM)

$735 million

P/E ratio (trailing)


Return on Equity (TTM)


Source: Capital IQ, a division of Standard & Poor's. TTM is trailing 12 months.

Great stock, but too pricey?
Such has been the refrain of investors for years (well, except for that early Christmas retail bargain bonanza in early 2009 when shares of Coach could be had at Salvation Army thrift-shop prices).

Investors who've grown accustomed to trolling for bargain-basement prices will wince at Coach's current stock price (as close to its 52-week high as it is its 52-week low). But savvy shoppers know the pain of missing out on a discount because they waited for a bigger markdown that never materializes.

There's good reason for Coach's traditionally rich price tag: It's earned it. As my colleague Alyce Lomax explains, customers have come to know Coach as "a luxury label that also offers good, durable value in exchange for its lofty price tags."

The same can be said about the company. Discerning investors recognize that an investment in Coach gets you a pedigreed company with an all-star management team and strong international momentum.

Coach's current earnings multiples are pretty reasonable, but it comes down to Coach's ability to keep moving those handbags (and wallets and belts and sunglasses and fragrances and shoes and scarves) in a world where frugality is all the rage.

Attention, recession shoppers!
All the talk about the "new normal" -- the catchphrase describing the recession-era shopper mind-set -- makes Coach seem like a dead brand walking.

The truth is that the new normal is not simply about spending less; it's about being more discerning with those dollars we do spend. Quality and value are key to making that sale. (Sound familiar, investors?)

So how does a retailer deal with the post-apocalyptic shopper? One of three ways, it turns out:

1. Take the high road: Abercrombie & Fitch (NYSE: ANF) tried the high-road tack, telling consumers "our stuff is worth every full-priced penny -- deal with it." The retailer's refusal to dabble in lower-priced fare or -- heaven forfend! -- put up a "sale" sign backfired and left it with a load of unsold merchandise. Only recently has Abercrombie stooped to marking down goods to move them out the door.

2. Follow the detour to the low road: Slashing costs from the outset is another way to win over frugal fashion plates (aka "recessionistas"). Or so many retailers assumed. It's hard to do "brand lite" right. Ill-conceived short-sighted product makeovers -- loose threads, uneven hems, and warts and all on display -- can have long-term repercussions on brand cache. Of course, companies can also race to the bottom with cheap promotional stunts, like American Eagle Outfitters' (Nasdaq: AEO) recent wacky-slash-desperate attempt to lure shoppers by doling out free smartphones to any customer who simply tried on a pair of its jeans. Seriously, no purchase necessary!

3. The right road: Coach got its recession game plan just right. Basically, the M.O. was this: Stay relevant without destroying the brand. Motley Fool Stock Advisor senior analyst Andy Cross and I got the play-by-play from Coach CEO Lew Frankfort in late 2008. Today, the same strategy is still in full swing:

  • Be sensitive to price: Like other luxury retailers, Coach has responded to pricing pressures by offering a wider range of price points and adding more product in the $300 and less range (while maintaining margins). The difference is that Coach did it without cheapening itself by following that big-brand cardinal rule ...
  • Remain true to your core values: Fine craftsmanship, lasting style, and using high-quality materials are non-negotiables in the Coach world. The same TLC goes into manufacturing a fabric bag as it does an all-leather one.
  • Keep it fresh: With consumers doing more window-shopping before they buy, you've got to catch their eye with new fare or they'll just waltz on by. Coach sped up its design timeline so that fresh styles -- spearheaded by Coach design guru Reed Krakoff -- are on the sales floor faster than ever before.

I know, I know: Style, shmyle. So let's dig deeper in the Coach bag and you'll find a wad of cash ($690 million), not a lot on plastic ($25 million in debt), and a little something extra in a 1.6% dividend yield.

As sharp as Coach is looking lately -- in the most recent quarter, net income and sales were up 34% and 22%, respectively -- the best part about Coach's future is what's happening abroad.

The future: flying Coach around the globe
Coach has cultivated a stupendous following in the U.S. (The U.S. accounts for about 70% of revenue -- down from 77% two years ago.) But its continued success will depend on its ability to do the same abroad. The prospects look good: Apparently, Coach translates well.

Today, 28% of Coach's business is international, with three-quarters of that coming from the Japanese market. In China, Coach reported that comps increased by double digits in its first full year of direct operations of those stores.

With a new distribution center in China as well as more retail stores there and in Korea and Hong Kong, expect Coach to continue to bloom into a coveted international brand.

Previous recommendations ( Click here for full list of recommendations and performance):

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"11 O'Clock Stock" is sponsored by Motley Fool Stock Advisor. The Motley Fool will wait at least 24 hours after this publication before purchasing shares of Coach. To see an FAQ on "11 O'Clock Stock," click here.

Dayana Yochim does not own shares of Coach, but she does own several of the company's handbags. Coach is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.