Is Coach Still America's Premier Luxury Brand? - Ralph Lauren (NYSE:RL)

Today, Coach

COH

announced a very positive earnings report, as its Q2 EPS came in at $1.18, a beat over analyst estimates of $1.15. The company also reported revenues of $1.45B vs a $1.43B estimate. The company has shown strong revenue growth since emerging from the recession, as it has sought to expand its product lines through more affordable accessories as well as an expansion of its men's collection. In the earnings call, the company stated that the men's business is on track to double its sales in 2012. Despite restrained consumer spending over the past year, Coach has retained its title as an affordable luxury brand that many women aspire to. The company relies heavily on its outlet stores to move merchandise, and the strategy has benefitted from customers' newfound love for outlet malls. The company has also moved more production to China in order to cut costs and boost margins. A concern for Coach is its reliance on the Asian markets to drive a great deal of its sales. Many analysts have expressed concern that China's economy has slowed recently, and that fading customer demand could slow revenue growth for Coach. "The risk is a China blow up," said Morningstar analyst Paul Swinand in a previous interview with Reuters. "People were assuming luxury is a safe haven and are now rotating out." The company has also experienced some technical problems. Its website was hacked this morning and is currently redirecting some visitors to ugnazi.com. In multiple calls with Benzinga analyst

Abhi Rao

, Coach representatives showed a lack of coordination on the issue. A customer service representative did not have knowledge of the issue, while a Coach headquarters' spokeswoman stated that the company did have knowledge of the problem and were working to remedy the issue. Despite minor concerns, Coach appears poised to continue its growth, as its products are still desired by many women across all income levels. An expansion of its product offerings that will appeal to more middle class women, as well as more men's offerings will help to boost revenue growth in the short term. The company's trademark C logo bags are still a symbol of American luxury, and will remain in the hearts of women for years to come.

ACTION ITEMS:

Bullish:
If you believe Coach will continue to generate strong revenue growth, consider these trades:

Go long Coach. Shares have appreciated considerably since their 2008 lows and will continue to grow as long as the company can find new markets for its products.

Go long other American luxury brands such as Tiffany & Co TIF or Ralph Lauren RL. If consumers discover their appetite for American luxury goods again, these brands could benefit.

Bearish:
If you believe that customers will continue to show restrained spending, consider these trades:

Go short Coach. Shares could pull back after their recent gains, and analysts concerns over the buying power of Chinese consumers could weigh on the minds of Coach investors.

Go short a retail ETF. If Coach struggles to generate significant revenue growth this year, the lack of demand could affect all retailers.

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