Is luxury back? Coach beats estimates with 2Q earnings

(A luxury obsessed consumer. Picture courtesy of

Coach reported better than expected profits today. Net income rose to $303.4 million, or $1 a share up from $241 million or 75 cents in 2Q of last year. Sales rose 19% to $1.26 billion and the company expects sales and profit to increase at least 10% through 2011. In addition, Coach plans to repurchase close to $1.5 billion of shares by June 30th, 2013.

With those kind of numbers it's hard not to seriously wonder if the luxury retailers are finally back. Or is it?

Mike Tucci president of Coach's North American retail division credits three main reasons for strong sales during the holiday season: product performance, digital strategy and progress on the new mens intiative. Tucci specifically notes is the fastest growing full price channel in North America and experienced double digit growth during the holiday season. "We will continue to use digital capability as a touch point for the customers," he said on the earnings call. So what are some of the pitfalls for Coach? For one, gross margin estimates missed the street's expectations coming in at 72.4% compared to 73.2% due mostly in part by an increase in sales at their lower priced outlet stores. Second, Coach's market share in Japan continues to contract. But, with expanding market share in China (Frankfort referred to China as "our fastest growing business.") and a potential move of production to lower labor cost countries such as India, Coach may still see some bright days ahead in 2011.

Coach wasn't the only luxury retailer to report stellar earnings supported by significant growth in China. Burberry reported a 36 percent increase in sales reflecting the deal to take over 50 stores from the retailer's Chinese franchise partner. Likewise, the new "digitally enhanced" flagship store in Beijing drove significant traffic. "There is an underlying growth in the Chinese luxury sector anyway, but the main driver has been making sure our stores are properly stocked," said Stacey Cartwright, chief financial officer. "Previously, lean levels of inventory meant a lot of sales were walking out the door."

Luxury conglomerate Richemont reported a 7 percent increase in sales (omitting currency fluctuations) to $2.29 billion beating analysts estimates. The Asia-Pacific region accounted for 31 percent of Richemont's sales during the quarter.

It's difficult to ignore numbers like that especially when Consumer Confidence Index rose 7.3 points to 60.6. Feeling better about the economy mixed with a little "frugal fatigue" may be the exact combination luxury retailers need in order to have a full recovery. With that said, there is a Chloe handbag AND a pair Christian Louboutin heels that I've been eyeing for months now. 18 months to be exact.