Fashion Notebook

Financial Desk: Have a Cigar, Mr. Frankfort, Coach Sales Rise 19% in Q3

It's good to be Lew Frankfort. 

The Coach CEO today announced that third quarter sales had risen 19%, to $744.5 million, and profits rose 8% to $162.4 million, despite an economic slowdown in the North American market that has shaken the retail industry, and been the scape goat for much recent poor financial performance.

"We were pleased with our performance, especially in light of the worsening retail climate in the U.S.," Frankfort said, in a conference call with analysts this morning. "Overall, Coach's quarterly performance reflected the strength of the Coach franchise and the continued out-performance of the U.S. handbag and accessory category as compared to overall retail sales."

And while the macroeconomic landscape is still too murky for Mr. Frankfort to crystal ball fiscal 2008 performance, he did reveal that he expects to post $3.18 billion in sales for fiscal 2007 (which closes in June—you know, screwy fashion financial calendar), a more than 20% increase that will lift earnings per share to an estimated $2.06.

But it wasn't all sunshine and rainbows. Frankfort also said that the strong quarter reflects also "the critical balance provided by our multi-channel and international business model," which, of course, means that overseas sales were a significant factor, particularly in the Asian market. More telling on the domestic front was the department store weakness, where sales grew only 5% for Coach, versus a total revenue increase of 15% across all channels.

Frankfort attributed the growth, first and foremost, to the company's product, bound together with the "brand proposition" of Coach (read: something of perceived quality, for a range of price points), as well as the company's "broad and loyal  consumer franchise." OK, whatevs Lew, basically you owe the success to having products people want at prices they can still afford, or think they can, for now.

Of course, we'll have to wait and see how this whole recession thing shakes out, but if we had to call it earlier, we'd say that Coach looks to be one of the brands that will weather the storm, and perhaps even make a little bit of money in the process.

There's also some speculation, per WWD, that Frankfort might be getting ready to launch into the women's ready-to-wear business, big time, after poaching a series of designers from the house o' Marc Jacobs. Stay tuned.

Lessons in Branding: Why Going Logo-less Might Be A Good Idea For Luxury Brands During The Recession

There's an interesting  article today in the New York Times' "Thursday
Styles" section.

No, no, read on! It's not another critique of an out-of-touch story on youth trends or pandering pitch about how great the rich are and why we, the not-so-rich should thank our lucky stars they exist. Our friends over at Marx Marvelous have that end covered pretty well.

Rather, today, we're calling out a piece about the absence of logos on Bottega Veneta's luxury sportswear.

The piece, which can be read in full here, looks at how the Italian luxury label has revamped itself without going the route of high-profile monogramming or logoing.

Within the article, journo Ruth La Ferla, extolls the virtues of creative director Tomas Maier's consistent attention to high quality goods that hit the real deal in luxury, rather than merely the perception of luxury, and how his actions have driven the brand to a $500 million annual business, thereby making it the second highest earner for parent Gucci Group.

And then our favorite luxurist, Milton Pedraza, CEO of The Luxury Institute, chimes in to tell La Ferla that during a recession, the rich "don’t want to be screaming luxury right now...They don’t want something flashy that everybody else has. They are looking for unique handcrafted things that can’t immediately be reinterpreted at every level of the marketplace.”

The thing about logos, as we've long felt, is that they can cut both ways. In fact, we've been thinking about our own logo, for Fashion Notebook, which you can check out, at right, but the tech guys haven't yet gotten around to installing it. And maybe, now, we're thinking that's a good thing.

But back to the relevance.

Taking Vuitton, for example, when one of perhaps mass-affluent or aspirational means has laid down the dollars for a fashion piece that is truly of excellent quality, not to mention name recognition, it's, we think, safe to assume that we'd like others to know it. After all, that monogram tells others that we care about quality, perhaps that  we're hip to hot or established names in the industry, and, let's be honest, that we could afford to purchase it. In a sense, we want everyone else to know what that handbag, dress, or accessory was worth, and, by proxy, that we're worth something as well.

The problem, of course, is logos also tell us what everyone else is worth, too. And if we see a bunch of Louis Vuitton monograms on my friends' purses, or luggage, shoes, or, god help us, something bigger and obviously more expensive than the piece we bought, suddenly, Vuitton just doesn't seem so special anymore.

This is to ignore the further complications that arise from knock-offs. If everyone on Canal Street is rocking the monogram, and for a mere percentage point of what we paid, why we'd have a fit and would feel somewhat obligated to inform everyone we saw that, well, no, ours is in fact, real and then go into a litany about the stitching and leather quality that, at best, wouldn't gain us any friends, and, at worst, would lose us those we already count in our ranks.

And let's not forget that this isn't, obviously, just a Vuitton problem. Many other luxury brands feature highly-identifiable logos, monograms, or signature patterns on their products that identify the brand with all the subtlety of a bull horn. Think about those brands you recognize within seconds on some of the products worn by your friends: Coach, Gucci, Burberry, Chanel, Marc Jacobs, Dolce & Gabanna, DSquared, etc. 

As far as the recession, the no-logo route is probably a good idea. After all, those who can afford luxury goods without batting an eye are usually so acclimated to that lifestyle that, well, they don't need to scream it, as Milton says, like the rest of us. And those customers are precisely the ones luxury brands need to be going after in times of serious economic downturns. Sound familiar? Yeah, we've said that before.

And we've also dished with Maier on his strategy. When we were writing that tome about the opportunities and potential pitfalls of lower-tier secondary collections for high-end designers, it was Maier who said (towards the end of the article) he would never consider such an extension because he felt that it would potentially overexposure of the handbag business that is the core of Bottega's sales.

"The philosophy of Bottega Veneta is to produce innovative designs with the highest quality materials and contemporary functionality," Maier told us at the time. "All of this comes with a cost that can't be recreated at a bridge level price."

What remains to be seen, however, is whether or not Mr. Maier's activities give the brand something of a glass ceiling when we're in economic boom times, and everyone is scrambling for top-end designer merchandise. Then again, at $500 million in annual sales, I don't think he's got anything to worry about.

Financial Desk: Polo Ralph Lauren Sales Climb 13% in Q3

Looks like Polo Ralph Lauren will follow Coach in refuting
those analyst downgrades last month.

The New York-based fashion house posted a 13% increase in sales, at $1.2 billion for the third quarter ended Dec. 29, though net income rose a scant 2% to $112.7 million, or $1.08 per diluted share, over the same period. Polo also upped its fiscal year-end earnings guidance, now anticipating earnings per share in the lower end of a $3.64-$3.74 range. The prior guidance has been $3.50 to $3.60.

"Even in the context of macroeconomic uncertainty, our strategies remain intact," said Roger Farah, president and CEO, in a statement, an obvious allusion to fears over the pending U.S. recession's impact on the luxury market (for more on that, see my previous article, "Mass Affluents Retreat En Masse," here).

"Our company offers the highest quality, aspirational merchandise across the entire consumer spectrum," added Ralph Lauren, chairman and CEO, in a statement. "The diversity of our brand portfolio, the strength of our lifestyle positioning,  the talent of our creative and managerial teams and our increasingly global reach are enviable assets that position us well for long-term growth."

It's the last part of that statement that has gotten us to thinking: Has Polo really beaten the U.S. recession?

The company does not break out its sales for the U.S. region, in particular. No real surprise there, many global companies shy away from doing so. But there were some other indicators that have us scratching our head a bit.

"In the past few years, we have made significant long-term investments in our international business with the expansion of Europe, product categories such as Lauren and childrenswear, and channel expansion with our own retail stores and e-commerce," said Farah, in a statement. "Our more recent efforts include the repositioning of Japan and the development of accessories. While the recent decline in consumer spending presents near-term challenges, we continue to invest in our strategic initiatives as we believe they are long-term drivers of shareholder value."

So it would seem that Polo is hitching its horse, at least in part, to the international and e-commerce markets. Interesting, particularly in light of the conversation I had with luxury analyst Milton Pedraza (of The Luxury Institute, New York) a while back. Pedraza told me that, in the wake of the recession,  luxury brands had three main points of attack to weather the storm: focusing only on the super-rich who would be effectively immune from an economic recession, focusing on international markets to provide global relief for near-term losses in the U.S., and beefing up their online presence to accomplish that global reach.

Seems like Polo is hitting two out of three now. Of course, it would seem that the broad array of price points the brand offers might also provide some recession-ready padding.

Still no information on what role, if any, advertising and marketing played in the quarterly results. Will have to wait on that for later. Can't imagine they'd have much impact, since they've been fairly boring and cookie-cutter across the various collections. Enjoy a recent spot, above.

Polo spent $57 million on measured media advertising in the U.S. market for 2006, and spent $58 million through November 2007, per Nielsen Monitor-Plus.

Financial Desk: Coach Fights Back with Q2 Growth and Upped Guidance

Despite ominous downgrades from a Goldman Sachs analyst
last week, Coach seems to be  coming out swinging
following an impressive second quarter in which the leather goods company posted increases across top and bottom line ledgers.

Earnings climbed 11% to $252.3 million, or 70 cents a share, for quarter ended Dec. 29, while sales jumped a strong 21% to $805.6 million. Gross profits, however, slid almost 174 basis points to roughly 75% of sales, and inventories jumped 20% to $300.7 million.

Those latter slides might be attributable to the current luxury market weakness as consumers tighten their purse strings—for more on that, check out my "Mass Affluents Retreat En Masse" story from earlier this week—which seems to be supported also by Chairman and CEO Lew Frankfort's (pictured, above, right) statements about weakness in comp store sales.

"Specifically, North American comparable store sales were impacted by weak mall traffic and an unexpected decline in average transaction size," he said, in a statement. "The macro environment appeared to cause a shift by many consumers to lower price point items. Conversion remained very strong, offsetting the bulk of weakness."

Looking ahead, the company actually upped its earnings and sales guidances, with revenues pegged at $3.15 billion (a 20% boost), and share value of $2.06 (a 22% gain). Still, given the challenges in the U.S. environment, Frankfort said that the company would remain cautious in providing forecasted estimates of comp store sales—which he added represent roughly 20% of overall retail sales for the back half of the fiscal year.

Another way to offset any slowdown in the U.S. market might be the brand's boosted efforts in China, where it will open a new global flagship store in Hong Kong this summer.

"This flagship will significantly enhance the Coach brand and is consistent with our strategy of raising awareness and aggressively growing market share with the Chinese luxury  consumer," Frankfort said, in a statement. "Clearly, Greater China has the potential, during hte next few years, to become the third major market for Coach, following North America and Japan."

International markets currently represent about 25% of Coach brand sales.

No word yet on any ad changes at the company, though Frankfort emphasized that the challenging retail climate has the company "embarking on a comprehensive review of all ways in which the brand touches the consumer," and said the new positioning will become more clear as the company shifts into the 2009 fiscal year.

The brand boosted its ad spend by roughly 31% during Jan.-Nov. 2007, growing to $13.2 million, versus $10.1 million from Jan.-Nov. 2006, per Nielsen Monitor-Plus.