Economy slow, but Coach prospers

Question: With all the recession worries, what are the prospects for my shares of Coach Inc.? — F.V., via the Internet

Answer: Though nearly one-fourth of the luxury retailer's handbags cost $400 or more, it is prospering in a weak economy.

Masterful at product mix, Coach continues to capture the imagination of women receptive to its brand-name products, whether the trendy handbags go for $200 or $800. It also sells accessories such as wallets and watches and has expanded into jewelry and perfume.

That's why it is good news that the employment contract of Reed Krakoff, the company's executive creative director credited with turning the once-staid company into a trendsetter, recently was extended through June 2014.

Coach shares (COH) are up 9 percent this year following last year's 29 percent decline, caused primarily by bad news about the economy. Fiscal third-quarter sales rose 19 percent on strong North American results.

Coach has 287 stores and 101 factory outlets in North America and also sells products through department stores. It continues to aggressively open new stories here and in Japan, its second-largest sales market after the U.S.

It recently signed a distribution agreement to put its products in 15 Russian locations over the next five years. The brand is also on the rise in emerging markets such as China, which it expects eventually will become its third-largest sales market.

The consensus rating on Coach shares is "buy," according to Thomson Financial, consisting of four "strong buys," seven "buys" and nine "holds."

More women are considering purchases in the premium handbag market, according to the company. It points to a study of 6,000 women it commissioned that found 85 percent of them intend to spend more on handbags even while reducing spending in other areas.

Coach's continued rapid growth is largely dependent on international markets and the ability to keep trendy with innovative products. As the brand becomes increasingly available here and abroad, it also risks losing some of its exclusive image.

The company's initial public offering was in 2000. Lew Frankfort has been the chairman and chief executive since 1995, and Jerry Stritzke, a Victoria's Secret executive, recently was hired to succeed Keith Monda as president and chief operating officer.