Coach Cautious About 2009

Posted by: Charles DuBow on July 29

Luxury products blog—and guilty pleasure—Luxist has a nice post today on Coach (COH), which announced just its fourth quarter earnings. Like many other luxury products and services companies, the handbag and accessories maker continues to see strong sales, especially in North America, China and Japan, despite the increasingly sluggish global economy. But looking ahead to the rest of the year they don’t like what they see.

The New York City-based company reported that revenue rose 20% to $781.5 million from $652.1 million last year. Excluding the benefit of a weaker dollar, sales rose 16%. Thanks to strong sales and a weaker dollars, profits for the quarter ended June 28 rose to $213.5 million, or 62 cents per share, from $160.6 million, or 42 cents per share last year.

Despite saying that the quarter showed the company’s “ability to generate profitable growth in challenging times,” Reuters also reported CEO Lew Frankfurt as saying: “‘While our new fiscal year has just begun, we believe that the consumer malaise in the U.S. will remain well into calendar 2009, significantly impacting our business.’” He added: “‘Accordingly, we will plan cautiously until we see concrete evidence of a change in consumer behavior.’”

That’s the good news. The company, which has enjoyed a good run over the past few years, has steadily moved its image increasingly upscale, a move which seems to have benefited their performance as many mid-tier companies struggle. In recent days top-tier luxury companies such as LVMH, Hermes, PPR and Richemont have all announced strong earnings in the last quarter.

But Coach still doesn’t quite fit in with these companies and others at the high-end of the luxury scale because the price point on its products tend to trail behind the Fendis, Pradas and Guccis of the world. It’s a paradoxical way of thinking, because one would assume that in tough times people would gravitate towards less expensive products that still offered good quality. But so far that doesn’t seem to be the case. That’s because it’s the middle range consumers and below who are being hardest hit. The wealthy, for the time being at least, whether in Moscow, Mumbai or Manhattan, are still buying the brands they always have. And, as I have blogged out before, the high end brands have more cachet than ever now because unlike in the past, only the truly well-off can afford them.