Second-quarter net income increased 25.7%, to $303 million, or $1.00 per share. Net sales increased 19%, to $1.26 billion. North American same-store sales surged by a strong 12.6%, and comps in China grew by a double-digit rate. Not surprisingly, CEO Lew Frankfort said China is Coach's fastest-growing business; more unexpectedly, Coach plans to move some production from China to places where production expenses are lower, like India and Vietnam.
Despite many signs of a solid quarter, some investors fretted about Coach's gross margin, which remained stagnant at 72.4% and missed analysts' expectations. Basically, shoppers spent a lot at Coach's lower-priced outlet stores, and the company marked down its average handbag price by 10%, dragging down margins. Given our still-flailing economy, none of this seems too surprising.
Despite any temporary pessimism, Coach remains a strong defensive stock. It has a classic brand that resonates with American consumers, and its merchandise is associated with high quality. Even in a difficult economic environment, Coach is the kind of quality splurge that consumers will be willing to save up for.
Meanwhile, Coach is a well-run company that could let investors sleep at night. There are plenty of beleaguered retail and consumer-facing companies out there, all of which are risky for investors. Take Talbots
Investors would be far better served investing in a company like Coach, which is strong enough to announce a new share buyback to the tune of $1.5 billion. Although its forward P/E of 16 may sound pricey compared to many beleaguered consumer-facing stocks, Coach can both survive and thrive, even as many other companies scramble for customers.
Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.