Amid a weak retail environment, Coach, Inc. (COH), the designer and marketer of fine accessories and gifts, recently reported first-quarter 2010 results that topped expectations.

Coach’s quarterly earnings of 44 cents a share surpassed the Zacks Consensus Estimate of 39 cents, but remained flat compared to the prior-year quarter. The better-than-expected result was buoyed by the successful launch of the Poppy collection, which includes a new line of handbags, footwear, watches and other accessories at a comparatively low price.

Total net sales showed a marginal increase of 1.2% year-on-year to $761.4 million, driven by an 8.0% gain achieved at North American stores and strong growth in the China business with a double-digit rate increase in comparable-store sales. Comps at North American stores fell 1.1%, a sharp improvement from a 6.1% decline registered in the previous quarter.

The rise in sales was a positive indication for the luxury-goods market, battered by the economic downturn.

Direct-to-consumer sales, which include the company’s China business, jumped 10.0% to $654 million. In Japan, sales fell 3.0%, excluding foreign currency translation, but in dollar terms sales climbed 11.0% when adjusted for a stronger yen. Indirect sales plunged 33.0% to $108 million.

Coach remains optimistic about its rapid growth in China, and plans to open its first mainland China flagship store of 7,000 square foot in Spring 2010 in Shanghai. The company also plans to open an Asian distribution center in Shanghai before the end of the fiscal year in order to oversee its operations in the region.

Gross profit fell 1.4% to $550.2 million due to the increase in cost of sales, whereas gross profit margin narrowed 190 basis points to 72.3%.

During the quarter, Coach opened 10 retail stores and 5 factory stores in North America, taking the total to 340 retail stores and 116 factory stores at the end of the quarter. In Japan, the company opened two locations, bringing the total to 162, and in China, 5 net new locations were opened bringing the total to 33.

The company ended the quarter with cash, cash equivalents and short-term investments of $994.7 million and long-term debt of $25.1 million.
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