Facade of Coach's first Paris flagship

Seeing success with its Stuart Weitzman acquisition, Coach Inc. is considering more deals to fuel the company’s growth.

But it won’t happen right away, since Weitzman is still in integration mode, according to Victor Luis, Coach’s chief executive officer.

“The capital allocation strategy at Coach Inc. is to invest in our current brands,” Luis said in an interview. “We will look at acquisitions very selectively, in areas where we can help create value either in where we can leverage our supply chain or leverage our strength in retail distribution in North America or internationally.”

That was as close to an explanation as he would get to specifics on the firm’s acquisition criteria.

Jane Nielsen, Coach’s chief financial officer, spoke about the possibility of an acquisition down the road during the company’s second-quarter conference call to Wall Street analysts. She explained that the company wanted to “have the flexibility to act if and when it’s in the best interest of Coach and our shareholders.”

Part of that flexibility would come from the sale of its interest in its joint venture investment at Hudson Yards in Manhattan. Coach said previously that the $530 million investment in 2013 for a 738,000-square-foot portion in the first tower built was for its new headquarters. In November, the company said it was looking to sell its interest, but would do a sale-leaseback of its offices as part of the recapitalization of the investment. Nielsen said Tuesday morning that the company had begun discussions with partner-related firms.

Luis was particularly pleased with the results in the second quarter, and in the interview referred to it as the “most significant quarter yet.” That’s because the three-month period reflected a sales gain for the first time in 10 quarters, since the company embarked on its “transformation” into a lifestyle brand. While Coach executives had been talking about green shoots and how executive creative director Stuart Vevers’ collections are gaining traction with consumers, Tuesday’s report was the first time there was concrete evidence. Adding to the positive news was the adjusted earnings per share results that beat Wall Street estimates.

The handbag and accessories firm posted a 7.3 percent decline in net income to $170.1 million, or 61 cents a diluted share, from $183.5 million, or 66 cents, a year ago. Sales gained 4.5 percent to $1.27 billion, up from $1.22 billion. On a non-GAAP basis, net income was $188 million, with EPS at 68 cents. The company beat Wall Street’s estimates of 66 cents in EPS, but slightly missed on the revenue estimate of $1.28 billion.

In North America, the company said Coach brand sales fell 7 percent to $731 million from $785 million, while comparable-store sales slipped 4 percent. Comps results included the impact of the Internet, which pressured comps by 1 percent due to the reduction in eOutlet events.

For the six months, net income fell 11.9 percent to $266.5 million, or 96 cents a diluted share, on a 2 percent sales gain to $2.30 billion.

Investors liked the news, sending shares of Coach up 9.8 percent to close at $33.33 in Big Board trading. Nearly 16.5 million shares changed hands, compared with an average three month volume of 4.8 shares.

In the interview, Luis noted the sequential improvement in comparable-store sales and said the company is “still planning for positive comps by the end of the fourth quarter.” He said that the quarter’s results were helped by Weitzman and by double-digit increases in Europe and Mainland China, as well as sales gains in Japan.

As for Weitzman, Luis said, “The brand did well, and in a season with ridiculously warm weather over the holidays, it was the only real fashion retail boot brand that had trend-right product.”

The ceo added that both Weitzman and the core Coach brand are able to recruit younger consumers, noting how “Millennial consumers are now entering the Coach franchise.”

Overall, the sweet spot for the Coach brand is at the $300 level, although Luis said the level “above the $400 price point is a promising area of growth.” He added that from how consumers are communicating in social media and what they are tracking, “what we are seeing most clearly is that consumers want a unique combination of authenticity and value [which fits] well with our strategy, our positioning.”

While the news overall reflected an improvement for Coach, the women’s handbags and accessory market was flat in the quarter, Luis noted during the conference call.

Jefferies analyst Randal J. Konik has a “Buy” rating on Coach shares and a price target of $51, which is among the firm’s top picks for 2016. According to Konik, “Total company top-line is up for the first time in two years, operating margins remain extremely healthy and the outlook is stable indicating the fundamental bottom has been reached.” The company said the operating margin for the quarter was 20.5 percent, compared with 22.6 percent a year ago. The margin was 22.4 percent on an adjusted basis, compared with 24.5 percent a year ago.

Nomura analyst Robert Drbul, who has a “buy” rating on the stock, maintained his third quarter EPS estimate of 43 cents, adding, “We also expect that Coach will benefit from the continued secular shift from apparel to accessories.”