How Coach Managed to Rise Above Presidential Election Hysterics

For handbag maker Coach (COH) , its ability to be a rare retailer that shares some positive news days before the end of a contentious presidential election season boils down to what it has done to improve its own fortunes.

"We have been working really hard the past two years to transform stores nationally, very focused on improving product and very focused on increasing our marketing impressions with consumers. I think people are enjoying coming into our stores, they like the product they are seeing, the environment and the engagement with our staff," explained Coach CEO Victor Luis in an interview when asked why the frenzied election cycle didn't derail the company's latest quarterly results.  

Coach reported fiscal first-quarter earnings on Tuesday of 45 cents a share, in line with Wall Street forecasts. Net sales rose 1% to $1.04 billion, falling shy of analysts' estimates for $1.07 billion. But the company notched several wins during the quarter that suggest its turnaround remains intact even in the face of tepid consumer spending.

First, Coach saw U.S. same-store sales -- which are sales from stores open longer than a year -- rise 4% at its bricks-and-mortar retail locations, helped by a venture into more premium handbags such as its 1941 and Felix the Cat collections. Coach's sales of handbags priced above $400 rose to 50% of its retail store sales, up drastically from 30% a year ago.

The push into higher-priced bags and accessories lifted the Coach brand's gross profit margin to 69.8% from 68.6% a year ago. Meanwhile, inventory declined 5% from the prior year, which raises the prospect of Coach not having to discount aggressively at its retail locations or department stores during the holidays as it's currently not overloaded with merchandise.

Strength at its U.S. retail stores -- as well as in China and Europe -- aided Coach in overcoming another challenging quarter at North American department stores. Sales in that channel plunged a whopping 30% as the company exited about 120 unproductive spaces, per a decision announced earlier in the year to vacate 250 or so locations.

Coach reiterated that it sees revenue rising by a low- to mid-single digit percentage for its fiscal year, as well as earnings rising by a double-digit percentage. Shares rose as much as 4% in afternoon trading.

"It's very hard to predict [consumer moods]. A lot will be determined by what does happen during the election and post-election in terms of controversy that may or may not happen around the results, and how that may impact consumer moods," says Luis on the state of the consumer just a weeks out from Black Friday.

At least for right now, however, Coach has earned the distinction of being one of the few retailers that has managed to sidestep a sales plunge. That has brought a bit of pre-holiday cheer to Luis and his team at Coach.  

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