NEW YORK • Coach is now flying higher, no longer dependent on mostly "coach-class" consumers. And investors are hungry for a piece of the action.
Shares in the American handbag and accessories maker jumped 12 per cent on Tuesday after it posted better-than-expected earnings.
Still, its long-term strength will depend on how well it executes on increasingly ambitious plans to join the ranks of the world's biggest luxury fashion houses, said Bloomberg.
Comments during Coach's earnings call on Tuesday - as well as recent hires and chatter around potential luxury targets - make it clear that the company has higher aims than the goal it announced in 2014 of restoring a 76-year-old brand tarnished by years of deep discounts and over-expansion.
Coach has taken some short-term sales losses by pulling out from more than 250 department stores in the United States, noted the Business Insider.
It also shut poor-performing stores and relied less on discounts. But it has got customers to pay full price for its goods again and has started to rebuild its image as a true luxury player.
Sales of goods priced higher than US$400 (S$560) made up more than 55 per cent of Coach's handbag sales in North America, up from 40 per cent a year ago, the company said.
Now, Coach wants to transform itself into a sort of mini-conglomerate, along the lines of European fashion houses such as LVMH Moet Hennessy and Kering. It is a promising idea for Coach shareholders, if it works, said Bloomberg.
Coach declined to comment on specific acquisitions on Tuesday, but stressed that strategic mergers and acquisitions are a top priority.
Its 2015 acquisition of luxury shoemaker Stuart Weitzman has paid off and it is hungry for more. It has held talks to acquire Kate Spade & Co and Jimmy Choo , according to recent reports.
Meanwhile, a Coach buyout of Burberry Group is a perennial favourite among luxury deal rumours.
Whichever companies Coach decides to pursue, the luxury space is ripe for consolidation.
It is armed with a cash pile of US$1.9 billion, up from US$1.3 billion a year ago. It has also pared debt to less than US$600 million, from US$900 million a year ago, which will come in handy if it decides to do more than one deal this year.
Transforming into a true fashion house will not happen overnight, Bloomberg noted. And such a change comes with serious risks, particularly in the US, where investors long ago stopped believing in conglomerates.
Companies have spent recent decades breaking into pieces, under the assumption that executives cannot successfully manage multiple brands.
For instance, the company Kate Spade evolved out of Liz Claiborne, spent decades scooping up labels as varied as Juicy Couture, Mexx and Lucky Brand, only to have shareholders complain about poor performance.
Eventually, it got rid of all the other brands, renaming itself Kate Spade.
As long as it avoids Liz Claiborne's quick-hit deal strategy and does not splash cash around to snag quick sales, Coach should be able to build a fashion house to last.