Judging by its stock's drop, Coach (NYSE: COH) has severely shaken many investors' confidence today. Is the ugly economy simply too much negative baggage for this venerated leather purveyor?

Fourth-quarter net income increased 4%, to $202.5 million, or $0.68 per share. Coach's total sales increased 9% to $1.03 billion. If you strip out the extra week that benefited its fiscal fourth-quarter results in 2010, Coach's profit increased 18%, and revenue jumped 17%.

Despite these promising results, Coach shares plunged about 6% today, in part because of the company's margin malaise. Coach's gross margin dropped to 71.8% in the most recent quarter, from 73.3% this time last year. Higher costs for Chinese workers and other increasing expenses contributed to this slide. On Coach's conference call, management indicated that investors should expect a flat gross margin this year.  

On a big-picture level, it's easy to see why an investment in Coach wouldn't look so compelling right now. A stalled-out U.S. economy and its high numbers of unemployed and cash-constrained consumers don't bode well for luxury-goods purveyors like Coach and its ilk.

Similar concerns drag on the handbag maker's ritzy peers. Can Tiffany (NYSE: TIF) sell as much pricey high-end jewelry? Can Williams-Sonoma (NYSE: WSM) continue to peddle a steady volume of expensive kitchenware? Can Nordstrom (NYSE: JWN) entice its customers to spend at full price? Consumers let their spending languish in June, cutting their outlays by the most in two years.

These companies will all have to navigate an extremely difficult consumer environment. Shares of all three have also fallen significantly today. Are they bargains or value traps right now? Investors must tread carefully.

When surveying the luxury sector, I consider Coach one of its most stable residents. Its diversified product line and variety of retail channels give the company the widest access to consumers at different income levels.

No one likes to see flat or dwindling margins, but Coach nonetheless boasts a great, solid brand that many consumers aspire to. It's also got smart, nimble management that's already proven itself a great steward in tough times. If you've been coveting shares of Coach, today's beaten-down price could be an opportunity to pocket a position.