Coach had a pretty sexy quarter

The impressive turnaround at Coach (COH) rages on, despite malls across America darn near falling apart due to the shift to online shopping. 

On Tuesday, Coach reported adjusted earnings of 75 cents a share, ahead of Wall Street estimates for 74 cents a share. Revenue climbed 4% from the prior year to $1.32 billion, meeting analyst estimates. North American same-store sales rose 3%, topping forecasts for an increase of 2.2%. As in recent quarters, Coach was helped by a venture into more premium handbags such as its 1941 collection. Coach's sales of handbags priced above $400 rose to 50% of its retail store sales, up drastically from 30% a year ago.

Coach now expects to report fiscal 2017 revenue growth in the low-single digits, down from previous expectations of growth in the low-to-mid single digits due to primarily to the impact of the strong dollar.
 
Shares of Coach rose 3.8% to $37.35 in Tuesday trading.
 
Nevertheless, in a sea of dreadful holiday season results from the likes of Under Armour ( UA - Get Report) , Macy's ( M - Get Report) , Kohl's ( KSS - Get Report) and J.C. Penney ( JCP - Get Report) , Coach served as a breathe of fresh air. TheStreet spoke Coach CEO Victor Luis about the quarter, what's in store for 2017 and the new administration. What follows is an edited and condensed version of our interview.

 
A quality quarter from Coach
 
TheStreet: We chatted recently with Macy's chairman and CEO Terry Lundgren, who noted that retail hasn't yet solved all of the challenges it's currently experiencing. What's your take on the state of retail right now?
 
Luis: Where our perspective may be different than Terry's is that we are in essence a manufacturer, designer and a brand. I believe that for the third-party retailer who is really looking to position themselves with a wide variety of different brands and resources, the challenges are really quite different. For us, the number one priority has been, and will continue to be, to develop the Coach narrative with great products, great in-store experiences and engage with consumers with great marketing such as [fashion] events or on social media. 
 
There will be evolution in retail. Some companies will become less relevant, some will grow in importance. Some malls die, some malls prosper. Some street locations prosper, and others become less relevant. As channels evolve, so will our distribution footprint. I don't look at it as retail is dying, because it's not by any means, it's just changing. The channels are changing, the transparency is changing and how we communicate with consumers is changing. 
 
TheStreet: Wall Street seemed to think handbag players such as yourself were poised to report weak holiday results after Macy's noted a few weeks ago that it saw sluggish sales of handbags. Yet, here you are today with something relatively upbeat. What did everyone miss?
 
Luis: For us, it isn't about the last quarter. It's about a very methodical strategy we have been working on now  for two and a half years. We are advancing. For example, we have remodeled 540 retail locations. We continue to innovate on product, our team continues to think how they can bring emotion to our assortment in either full-price stores or outlets. And in marketing we continue to innovate, for example we just announced Selena Gomez as the face of a new campaign. 
 
It's about driving a constant stream of innovation and bringing excitement to the category. 
 
TheStreet: How do you plan to utilize Selena Gomez' massive following?
 
Luis: Starting in the fall, Selena will become the face of the Coach brand as it relates to fashion. We believe Selena is wonderfully liked, authentic and truly a great partner for us in terms of her approachability in the U.S. and globally. It's not only about the work she is going to do in terms of being in our fashion campaign, but also her work in designing a specific product that will be co-marketed and with the Coach Foundation

 
Coach's fashion focus is paying off
 
TheStreet: How would you characterize the valuations right now on brand assets you may be looking at acquiring? They seem to have been bid up given all the speculation about Kate Spade ( KATE) and others potentially being acquired
 
Luis: In general, any time there is uncertainty or variability there will obviously be opportunities for valuations to be more attractive. Certainly, we continue to think about our capital allocation strategies, with first and foremost the most important being investment in the Coach and Stuart Weitzman brands. We also know there are great brands that we can add value to that may be available in the market. 
 
We have nothing to announce. In general, I would say valuations are more attractive today than a few years ago. But, there could even be more opportunity in the months and quarters ahead. 
 
TheStreet: Are you willing to leverage up Coach balance sheet to do a big deal?
 
Luis: We have been specific in that we want to maintain our investment grade credit rating to a certain extent. But, we would consider that on a case by case basis.
 
TheStreet: Regarding potential border taxes by the Trump administration, how is Coach planning for that possibility?
 
Luis: Like everyone in our industry and across the U.S. corporate environment, we are looking at the potential impact of deregulation and taxation. We of course are excited, and very supportive of, any policies that lead to deregulation and lower taxation that spurs economic growth. On the other side, we of course would be very concerned about any policies that lead to increased duties and costs. That would be counter to not only Coach's interests, but also the interests of consumers that would have to pay higher costs. 
 
I'm confident in our supply chain and the ability to be flexible, we source in 18 countries across the world. 
 
TheStreet: So Coach won't be preemptively hiking handbag prices by 10% on fear of border taxes by the Trump administration?
 
Luis: At the moment, we have absolutely no plans to do anything preemptive on pricing. We are studying all of the different options that we may have and are doing quite a bit of planning around optionality based on potential policies. We want to be prepared.