Last week’s question and answer

I trace my history back to 1795 and a bourbon-making grain mill operator named Jacob Beam. Today I’m a leading consumer brands company, with brands that focus on home and hardware products (Moen, Aristokraft, Schrock, Diamond, Omega, Therma-Tru, Master Lock and Waterloo), spirits and wine (Jim Beam, Knob Creek, DeKuyper, The Dalmore, Vox, Geyser Peak and Wild Horse), golf equipment (Titleist, Cobra and FootJoy) and office products (Swingline, Wilson Jones, Kensington and Day-Timer). Based in Lincolnshire, Ill., I employ more than 30,000 people, and my annual sales top $7 billion. Who am I? (Answer: Fortune Brands)

Full price reigns at Coach

Coach (NYSE: COH) has been breaking some rules. Coach has been faring so well that it didn’t need to resort to a holiday tradition most retailers don’t relish: marked-down merchandise. That’s good news to Coach’s long-term investors, who have seen the stock price increase about 50 percent during the course of the last year.

Better still, the leather and luxury accessories provider expects its sales to rise 25 percent for its second quarter. And it won’t be participating in the margin-deteriorating price-cutting exercises that many retailers have been forced to resort to in order to move their holiday inventories. There’s apparently a lot of demand for $300 backpacks and other high-end skins. In recent quarters, sales have advanced more than 30 percent over previous-year levels, while gross margins have been advancing and operating costs shrinking. Coach’s balance sheet is healthy, it’s increasing its global presence, and it has an impressive track record.

Given the stock’s appreciation during the last year, it’s not too difficult to surmise that maybe Coach’s shares are just as fully priced as the company’s goods are right now — and that maybe prospective investors ought to think twice before flying Coach. On the other hand, it never hurts to consider a retailer that can hold on to full-price allure.

Retirement resolutions

Here are some resolutions to help you plan a comfy retirement:

• Save more. In 2005, the annual contribution limits for many tax-advantaged retirement accounts jump by $1,000. The limit for 401(k), 403(b) and 457 plans is now $14,000, and IRAs now can absorb $4,000.

Increasing your annual savings by $1,000 is just $83 a month but can add up to $50,000 over 20 years and $125,000 over 30 years (assuming an 8 percent annual return).

• Stop eating your retirement. To save more, you must consume less. Cut out just $30 per month (a dollar a day) and add that money to your savings — growing at just 6 percent, it would top $30,000 in 30 years.
• Stop borrowing your retirement. Your portfolio will never be able to replace your paycheck if your assets aren’t growing significantly faster than your liabilities. Eliminating high-interest consumer debt should be the No. 1 priority of your retirement plan.
• Turn hobbies into incomes. Is there something you do and enjoy that can generate extra money for you, either now or in retirement? Making some extra money now (perhaps by teaching, writing or even working a few hours at Home Depot) could increase your savings and move up your retirement date. Having a part-time profession in retirement also offers benefits.
• Run the numbers. Though many people are eager to retire, most haven’t calculated how much they’ll need to retire. Visit our online calculators at www.fool.com/calcs/calculators.htm to see where your current plan will lead.
• Get an asset allocation. Any good retirement plan involves an investment plan — how much you’ll have in stocks, bonds, real estate and cash, and how often you’ll adjust your mix. Saving money is a big first step, but where you put that money is a crucial next step. Nothing has a greater impact on your portfolio’s ability to support your retirement than your asset allocation.

Learn much more about retirement issues at www.fool.com/retirement.htm and http://money.cnn.com/retirement. And consider checking out a free sample of our Rule Your Retirement newsletter at www.ruleyourretirement.fool.com.

A Kmart primer

I bought several hundred shares of Kmart in 1999 for about $7.50 each. I sold them for a loss when the company announced that it was filing for bankruptcy protection and the stock headed south. Now I see that Kmart shares have been trading around $100 per share. How dumb was that transaction? — R.K., Hillsborough, N.J.

The Fool Responds: Selling was not dumb (though buying may have been), because in many ways, we’re talking about two different Kmarts here. When companies file for Chapter 11 protection, it’s usually because they’re in deep trouble. While in Chapter 11, they have a chance to sort out their mess and reorganize. Those with claims on the company, such as creditors and shareholders, line up to be paid, but not everyone gets paid. Creditors get paid well before shareholders, who typically get little or nothing. Yes, nothing. The shares you bought, which traded under the ticker symbol KM, no longer exist. The shares trading today, under the ticker symbol KMRT, are not the same securities. They’ve soared on investor excitement and hopefulness because Kmart is merging with Sears, but the firm’s future nevertheless remains uncertain.

The inflation yardstick

What exactly is the CPI, and how does it measure inflation? — D.C., Tucson, Ariz.

According to the Bureau of Labor Statistics, the U.S. Consumer Price Index “is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”

These “urban consumers” reflect 87 percent of the U.S. population and the “basket” includes items such as cereal, fuel oil, pet food, rent, postage, cigarettes, college tuition, prescription drugs and haircuts. The index shows that if you bought such goods and services for $100 in 1975, in 2004 they would have cost you $355. The BLS adds: “The CPI market basket is developed from detailed expenditure information provided by (more than 30,000) families and individuals on what they actually bought.”

The index is used as an economic indicator and a means of adjusting dollar values, among other things. Learn more at www.bls.gov/cpi/cpifaq.htm.

What’s a dividend? — C.O., Fort Wayne, Ind.

It’s a portion of a company’s earnings that’s paid out to its shareholders. If Carrier Pigeon Communications (ticker: SQUAWK) earns roughly $4 in profit per share each year, it might decide to issue $1 annually to shareholders and reinvest the rest of the money in building the business. If so, it will probably pay out 25 cents per share every three months. This may seem like peanuts, but it adds up.

If you own 200 shares of a company that’s paying $2.50 per share in annual dividends, you’ll get $500 per year from the company.

Better still, growing companies tend to increase their dividends over time.

Learn about promising dividend-paying firms via our Income Investor newsletter at www.incomeinvestor.fool.com, or the DRIPInvestor newsletter at www.bls.gov/cpi/cpifaq.htm.