February 5, 2009 - Coach, Inc. (COH-NYSE) engages in the design and marketing of fine accessories and gifts fo rmen and women in the United States and internationally. The company's primary products include handbags, women's and men's accessories, footwear, jewelry, wearables, business cases, sunwear, travel bags, fragrance, and watches.

The company's wearables product line consists of jackets, sweaters, gloves, hats and scarves, including cold weather and fashion goods for women. Its business cases product line includes computer bags, messenger-style bags, and totes for men.

Coach, Inc. also offers luggage and related accessories, such as travel kits and valet trays; jewelry, including primarily bangle bracelets; and fragrance products comprising perfume sprays, purse sprays, perfume solids, shimmer powder, body lotion, and lip gloss.

As of June 27, 2009, the company operated 330 retail and 111 factory leased stores in North America; 155 Coach-operated department store shop-in-shops, retail stores, and factory stores in Japan; and 28 Coach-operated department store shop-in-shops, retail stores, and factory stores in Hong Kong, Macau, and Mainland China.

Here's what's interesting: sales at Coach have steadily increased each year for the last 5 years, even with the recession. Furthermore, the stock is up more than 60% since January. This once hot stock (split 2 for 1 three times within 3 years), got lots of cold water thrown on it in 2007 when it reached its all-time high of $54 a share. Investor enthusiasm waned until the stock hit a bottom of $11.40 early this year. It's recaptured some ground, currently trading at $33.50. Can it keep going?

While revenues continued to climb, earnings didn't follow. In 2008, they were $2.06, up from $1.69 (fiscal year ends in June). In 2009, earnings per share (EPS) dipped to $1.91. This fiscal year, 23 analysts have a consensus estimate of $2.08. A nice bounce back. Next year, expect $2.26. It would seem the one year drop was just that: one year in duration.

The company is delivering good earnings in bad times. Its first quarter results of 44 cents a share matched the report from last year's first period. Not bad for a global economy that has little good news to report. Part of its success came from product offerings that ranged in priced between $200 and $300 which for Coach is the lower end of their goods. Consumers want to buy the quality of Coach without spending too much money. For the first quarter, total sales were up 1% to $761 million. The direct to consumer sales (catalogs and Internet) improved by 10%. In North America, revenues declined by 1%, down but better than the 6% decrease in the June quarter.

Coach is expanding in Asia and looking to build a presence in markets it currently doesn't serve. Asia is already a strong market with 11% of total revenues coming from Japan in the latest quarter. China is the next target with Shanghai as the scheduled first store and distribution center this year. Coach will also sell goods in department stores and establish factory stores as well.

It has plenty of cash and very little debt (less than 1% of capital) for expansion. With its $995 million in the bank, it can also increase its dividend (started this year at 7.5 cents per quarter) or expand its share repurchase program.

More numbers: Market Cap is $11.31 billion. Forward P/E is 15.71. Price to book is 6.06. Book value is $5.77. Operating margin for the last 12 months was 30.10% while Profit margin was 19.09. That Return on Equity bears repeating: 38.75%. That's noteworthy. Revenue for the last 12 months was $3.24 billion. Cash per share is $3.12. There is only $25.13 million of debt. Current ratio is 3.03. Beta is 1.73. In the last 52 weeks, the stock is up 100%. There are 318.93 million shares outstanding with a float of 314.05 million. Insiders have 1.54% while Institutions have 91%.

Investors can see some extremes in these numbers: first, the stock's price recovery; second the high Price to Book value; but also the extremely high Return on Equity. The stock is well off the all-time high and looks to to do well, no matter what the U.S. economy does. Then, when that heals, it looks like it's set to do extremely well.

- Company Web site: www.coach.com

- Ted Allrich