A return of focus to lower-priced items has helped Coach’s stock battle back from its record low in December 2007. The leather maker even went so far as to approve a $1 billion share buyback.

Polo Ralph Lauren Corp. (NYSE:RL) is also attempting to broaden its market base with a lower-cost product line for sale in J.C. Penney Co. Inc. (NYSE:JCP) department stores. But with Penney’s second quarter profits down 36%, the partnership seems unlikely to help either firm.

“I don’t think you could say that by staying true, a brand is guaranteed success. However, if they don’t stay true, success will be much more difficult to come by,” 400twin’s Hader said.

Luxury Stocks Worth the Price

The luxury brands that are going to be able to weather the current economic downturn have two major things in common:

• Being innovative while remaining true to the core product lines that made them famous.
• A smart expansion strategy designed to capitalize on growing demand in the emerging economies of China, India, Russia and the Middle East.

Two that might be worth a look include:

Hermes International SA (PINK: HESAF), maker of coveted handbags and scarves, had an impressive 24% increase in U.S. sales for the first six months of the year. Worldwide, Hermes sales jumped 12.1% in the second quarter, to $631 million ($398.1 million euros) from $564 million ($355.5 million euros) for the same period the prior year. Its European-traded shares are up over 13% year-to-date.

Hermes has been active in its expansion into China, where it currently has nine stores, as well as Russia and India where it will open a brand new location in the next three years.

Hermes has also been able to reach new business without forgetting its loyal core group of customers.

“Hermes sells the absolutely classic Birkin bags, but also bring out new styles of merchandise–[from watches to branded cars]–that show they know how to continue to interpret and apply their core values,” says Hader.

LVMH Moet Hennessy Louis Vuitton SA (OTC ADR: LVMUY) has got the luxury market covered on all bases. From Veuve Clicquot champagne to Louis Vuitton leather goods and Guerlain cosmetics, LVMH’s stable of brands reads like a who’s who of luxury brands. Other well-known names include Tag Heuer, Christian Dior and Moet & Chandon.

For the first half of the year, net income climbed 7% to $1.4 billion, fueled by strong sales in Asia, where sales increased 25%. A third of LVMH’s sales come from China, where the growing middle class is gobbling up luxury goods. At the same time, sales in the U.S. have remained solid, especially in the Wine & Spirits division.

LVMH Chairman Bernard Arnault said his firm maintained “excellent” sales in the U.S. despite the slowdown in consumer spending.

“We were very strong in mature countries like the U.S. France, and the rest of Europe,” Arnault said in a Bloomberg Television interview after the earnings release. “We were also extremely solid in developing countries like China, Asia as a whole, South America and the Middle East.”

“We have to find interesting opportunities with a profitability that would be interesting for our investors, which is not easy,” Arnault said. “We will adapt to opportunities, but it will have to be a high-quality, high-luxury brand.”

Source: Diamonds in the Rough: Two Luxury Brands Ready to Shine

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