Coach Reports 34% Surge in Q1 Profits

New York—Coach reported today a 34% increase in first-quarter profit after luring more shoppers with collections that hit more moderate pricepoints.

Net income rose to $188.9 million or 63 cents a share, far exceeding the 55-cent average estimates that retail analysts forecast. Sales gained 20% to $911.7 million, again topping projections. Comparable-store sales in North America increased 8.5% for the quarter ending October 2. Gross margin climbed to 74.2% from 72.3% on the sales gains as well as on “sourcing improvements.” A year earlier, first-quarter profit amounted to $140.8 million or 44 cents a share.

Lew Frankfort, ceo, cited “resiliency” in handbags and accessories in North America for the gains. The handbag, small leathergoods and accessories company benefited from its strategy of offering lower pricepoint collections, such as the successful Poppy collection which retails between $200 to $400, analysts pointed out, yet maintained their brand integrity.

“We have responded to a muted consumer environment globally with our merchandising, marketing and pricing strategies and are experiencing strong top and bottom line results,”  Frankfort said in the earnings report.

“It’s reflective in part on the success of their overall pricing strategy that they introduced last summer,” Jennifer Milan, an analyst with Sterne Agee & Leach Inc. in New York, said.

Optimistic for Holiday

In terms of the crucial holiday season and end of the year, Coach said early reaction to holiday merchandise has been strong and it’s “well positioned” and remains “confident” in its growth prospects and ability to drive sales and earnings at a double-digit pace. On its conference call with analysts, executives specifically mentioned they was “excited about the trend in small bags,” which it will promote as easy, affordable gifts.

“We’re well positioned for the upcoming holiday season and the balance of the fiscal year and remain confident in our growth prospects and ability to drive sales and earnings at a double-digit pace, given the current strength of the Coach business and our increasing global expansion,” Frankfort added.

Coach also boosted sales by expanding in Western Europe and accelerating store openings in China. This year the company also unveiled men’s stand-alone stores and introduced new Charm and Julia totes.

During the first quarter in North America, Coach opened three retail stores in addition to seven factory stores including two traditional locations and the first five men’s factory stores. This brought the total to 345 retail stores and 128 factory stores as of October 2.

In Japan, where Coach has 169 stores, sales rose 3% on a constant-currency basis, while dollar sales rose 14%, adjusted for a stronger yen. China is the focus of expansion, too. During the last quarter, Coach opened eight new locations, bringing the total to 49. Indirect sales increased 27% to $136 million in the first quarter from the $108 million reported for the prior year. This gain reflected significant growth in shipments into U.S. department stores and international wholesale, given positive POS sales, notably in the international business, and expectations for a stronger holiday season for Coach. , and growth came in at an undisclosed double-digit rate in China.

“We are particularly pleased with our recent developments in Europe, notably plans to open our first regional global flagship, which will be located on New Bond Street in London, as well as additional locations in France, Spain and Portugal, over the next several months,” Frankfort said.

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