If you were hoping for a clearer outlook on
luxury goods, you won't necessarily find it in
Coach 's (NYSE: COH) first-quarter
results.
The maker of high-class leather goods posted a 3.4% drop
in first-quarter net income, to $140.8 million, although
earnings per share came in flat at $0.44 per share. In one
heartening piece of news, Coach actually did manage to
increase its sales, but just a smidge; revenue ticked up 1.2%
to $761 million.
The results beat analysts' expectations for earnings of
$0.39 per share, but Coach's costs and margins remain
troublesome. Coach's gross margin dropped to 72.2% from 74.2%
as the company unleashed promotional pricing and shook up its
merchandise mix.
Still, Coach CEO Lew Frankfort said the company's new
Poppy line of handbags, which is priced for leaner times, has
been well-received. Poppy helped Coach ring up more handbag
sales and greater customer traffic than in the previous
quarter. The new, less expensive line is just one part of
Coach's efforts to adjust to a world of more frugal
consumers.
Among other strengths, Coach has a venerated brand and a
strong management team. That helps to insulate the company
for the long term, even when investors periodically get
cold feet. Better yet, Coach has a strong cash position
of $994.7 million, just $25.1 million of debt, and a CEO
who's proved his willingness to evolve along with changing
market conditions.
At 18 times trailing earnings, Coach is not as cheap as
the beaten-down lows it reached in March. But compared with
other high-end stocks, its P/E ratio still makes the company
look like a steal. Tiffany is trading at nearly 34 times
earnings, while Nordstrom sports a weighty P/E of 24.
The luxury-goods market remains a highly uncertain place.
Even if Coach seems relatively healthy and thriving,
investors shouldn't automatically expect pricey rivals
Tiffany (NYSE: TIF) and
Saks (NYSE: SKS), or even less obvious
higher-end picks such as
Williams-Sonoma (NYSE: WSM) and
Nordstrom (NYSE: JWN), to share the same good
fortune.
What do you think of Coach as a stock idea? Let us know
in the comment boxes below.
This article was originally published as
Hang On to Coach?on
Fool.com
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