Coach 2Q profit rises 15 percent, showing luxury market still has legs

New York— Luxury sales? Coach has it in the bag.

The bag and accessories maker said Tuesday that North American sales increased during the holidays. That and its growing men's and international businesses helped its fiscal second-quarter net income rise nearly 15 percent.

The results were a reassuring sign to investors that luxury sales continue to be robust, and Coach shares rose nearly 7 percent in midday trading. The luxury sector has performed better than other kinds of retailers, but some fear that is unsustainable since the economy remains uncertain and unemployment is high.

However, Coach results, which beat expectations, indicate that that worry might be unfounded. Revenue in stores open at least one year, a key retail metric which excludes newly opened or closed stores, rose 8.8 percent in North America during the October-December quarter.

"We were especially pleased with our ongoing strength in North America during the holiday season," CEO Lew Frankfort said. He added that results suggested that the company gained market share in the U.S. during the period, as shoppers bought lower-priced accessories such as wristlets and iPad covers.

Coach cut prices during the recession, but since then the average price of its handbags sold has been inching up. The average price was flat during the quarter, but Frankfort said that pricier products, with sales tags of $400 or higher, were a "growth opportunity" for the company.

Coach also introduced online-only short-term sales aimed at shoppers at its lower-priced factory outlets. The "flash" sales were a "highly profitable initiative," said Mike Tucci, president of North American retail.

The company is increasingly looking toward digital and social media, saying it offers more marketing and sales opportunities. Frankfort pointed out the company has 2.7 million Facebook fans.

Coach's international business, particularly in China, and its growing men's business also did well during the key holiday selling period.

The company is seeking to expand its men's business, which includes bags, wallets, coats and shoes, to $1 billion in sales over the next three to five years and is aiming for $400 million in revenue in the current fiscal year.

Coach has "impressive growth prospects" and makes smart investments, said Nomura retail analyst Paul Lejuez.

For the three months ended Dec. 31, the New York company said net income rose to $347.5 million, or $1.18 per share, from $303.4 million, or $1 per share in late 2010. That beat the $1.15 per share estimate of analysts polled by FactSet.

Revenue rose 15 percent to $1.45 billion from $1.26 billion. Analysts expected revenue of $1.43 billion.

Direct-to-consumer sales, which include Coach stores, catalogs and websites, rose 17 percent to $1.28 billion.