Smooth Ride for Coach

The upscale handbag maker easily tops earnings expectations.
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posted a 34% rise in fiscal first-quarter profits, topping Wall Street's expectation, as the upscale-accessories maker boosted margins and continued to benefit from demand for luxury handbags.

For the quarter ended Sept. 30, Coach earned $126 million, or 34 cents a share, up from $94 million, or 24 cents a share, a year earlier. The results exceeded Thomson First Call's average analyst estimate of 31 cents a share, as well as the company's own forecast of 30 cents.

Sales rose to $553.9 million from $449 million a year earlier, beating analysts' projection of $542 million and Coach's guidance of $535 million.

"Our exceptional results this quarter reflect the strength of our franchise and the enthusiastic reception to our product offerings," said Chairman and CEO Lew Frankfort. "Further fueling our results has been the continued rapid growth in the U.S. premium handbag market, as consumers continue to trade up within the category."

Coach also benefited from margin improvement. Gross margins rose to 76.7% from 76%, which the company attributed to product-mix shifts and supply-chain moves. The company's selling, general and administrative expenses also declined.

For the fiscal second quarter, which represents the key holiday selling season, Coach expects earnings of 56 cents a share and sales of $785 million. Analysts, on average, predict earnings of 55 cents a share and sales of $783 million.

Coach expects fiscal 2007 earnings of at least $1.63 a share, above Wall Street's expectation of $1.58. The company targets sales of $2.55 billion for the year, compared with analysts' forecast of $2.54 billion.

Shares of Coach were up $1.92, or 5.3%, in premarket trading.