• by Sarah Mahoney  @mahoney_sarah, October 25, 2006

Buoyed by strong new product lines, Coach Inc. said yesterday that earnings for its fiscal first-quarter surged 34 percent--well ahead of expectations--and that sales in the period gained 23 percent. And Coach is expecting an especially hot Christmas season, predicting holiday sales of $785 million--up 21 percent from last year.

The company has also undertaken some ambitious expansion plans, opening 12 retail stores and one new factory store in the U.S. in the first quarter, with plans to open an additional 18 stores and three more factory stores this fiscal year. Within the last month, Coach has said it would introduce a line of women's cashmere and wool knitwear, as well as a new fragrance, which it is developing with Estee Lauder.

What's driving the company's popularity, luxury-marketing experts say, is a deft balancing act between looks that are chic, stylish, and just out of reach of many consumers. At the same time, Coach keeps its selection accessible so that they still "play in Peoria," said Patti Pao, head of the Pao Principle, a New York-based luxury-goods consultant.

"Women can feel comfortable in Coach--it's never over the top," Pao said. Neither are the prices: While the high end of its Legacy collection is near $800, bags start at around $160, and most are priced between $300 and $400.

"Rich people don't want to see their bags on sale, and they really don't want to see themselves coming and going, either," Pao said.

Coach addresses that by constantly introducing new bags into the merchandise mix. "So on one hand, it's all about scarcity," she said, "and customers think, 'I better buy it before it's gone!' But it's also about discovery, and it makes women want to shop more often, just to see what's new, and buy multiples."

Of course, it doesn't hurt that American women have gone nuts for handbags--a market estimated at about $5 billion per year. The NPD Group says women are buying an average of three new purses a year.