Coach Tells Us Rich Folks Are Spending

Luxury looks like the way to go — but don't overspend

   

Just because a company reports fantastic earnings does not confine the good news to that company. Given the disaster that the economy has endured the past several years, one company might be part of a trend that can give investors a green light on other investments.

For example, Coach (NYSE:COH) reported strong earnings last week, and there’s information in there that can lead us down the path to riches — if we pay attention.

First, take a look at the important metrics. Coach’s revenues increased 15%, with an 18% increase in earnings. These numbers came on direct-to-consumer sales increases of 17% and U.S. comp sales of 8.8%. These numbers are what every retailer dreams of, and Coach must be ecstatic because of the specific demographic it targets.

The company is a luxury retailer, and that means that rich folks are spending money. InvestorPlace.com Assistant Editor Kyle Woodley, known for his expertise in women’s accessories, points out that these results come on the heels of Nordstrom‘s (NYSE:JWN) and Lululemon‘s (NASDAQ:LULU) outsized earnings. If you’ve got disposable income, you apparently are disposing of it.

So, on a more modest scale, that means investors should be looking for both growth and value opportunities in luxury retailers. Growth stories such as Ralph Lauren (NYSE:RL) and Michael Kors (NASDAQ:KORS) are worth looking at but not overpaying for. Ralph Lauren, for example, is overpriced at 22 times earnings, and Michael Kors is even worse at a forward P/E of 60!

Nordstrom looks fairly priced at 16 times earnings, and that means enjoying 15% growth going forward. Coach looks pricey at 20 times earnings, but with almost no debt and good cash flow, plus growing opportunity in China, it might be worth buying into if you think the growth trend will continue.

Saks (NYSE:SKS) struggled through the financial crisis, but I believe the turnaround has begun there. The company is profitable again with positive cash flow, and Saks is trading at 24 times earnings, which is less than the 100% earnings jump expected this year, and 25% projected earnings growth in 2013. That might be your value play.

And if your broker allows you to trade on the London exchange, have a look at Burberry (LON:BRBY).

On a grander scale, think about what else rich people might be buying. If they can afford totally unnecessary things like accessories, it might mean luxury travel is next. Indeed, hotel revenue and occupancy is on the upswing. Readers know my favorite play here is Ashford Hospitality Trust (NYSE:AHT). Management’s 20 years of hotel experience has helped them survive the bad times and flourish in the good times. Interestingly, they just set up an internally run $20 million hedge fund to invest in other public hotel companies. They wouldn’t be doing that if they thought the sector was headed for a downturn.

These trends also might bode well for folks with expensive boats. The boating sector has been totally hammered during the past few years, but it might be the time to start hunting for value among players like MarineMax (NYSE:HZO) and West Marine (NASDAQ:WMAR).

If you need other ideas, take a stroll through your local upscale mall. Many of those companies you see are public. Heck, if Lamborghini can open up a shop in my mall — complete with three cars on the showroom floor — things can’t be all bad.

As of this writing, Lawrence Meyers was long AHT. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.


Article printed from InvestorPlace Media, http://investorplace.com/2012/02/coach-earnings-coh-luxury-stocks-jwn-lulu-rl-kors-sks-aht/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.