Update Coach (COH)

07/28/2009 12:03 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Coach (COH) reported that its earnings for the June quarter matched Wall Street expectations at 43 cents a share.

That's about the last good news for the fourth fiscal quarter that Coach had to announce, however.  Coach certainly hasn't escaped the collapse in retail sales--although it is weathering the downturn better than most.

For investors who can get past the bad news of this quarter, though, the stock remains a compelling way to profit from the increasing number of middle-class consumers in China. That's why I put the stock in my book, The Jubak Picks, and why it stays in that portfolio.

Here's more of the bad news for the recently concluded quarter.

Net income dropped to $145 million from $214 million in the June quarter of 2008. Revenue held up better but still fell about 1% to $778 million from $782 million in the 2008 period. Gross margin dropped to 70.4% from 75.9% in the June quarter of 2008, and operating margin tumbled to 28.2% from 35.9% in the June quarter of 2008. Comparable store sales in North America declined 6.8% in the quarter. Sales in Japan were flat on a constant currency basis.

The one bright spot was China--and that's especially good news because Coach and investors are counting on that country for future sales and earnings growth. Comparable store sales climbed at a "douible-digit rate," the company said. Whatever that means exactly, it was enough to make the company accelerate its planned store openings there. The company told investors that it now plans to open 15 new stores in China, most of those on the mainland instead of Hong Kong, in the 2010 fiscal year that ends in June 2010.

(Full disclosure: I own shares of Coach in my personal portfolio.)

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