Coach Q1 Sales, Profit Beat Expectations in U.S., International

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Gwyneth Paltrow, the face for Coach in its Fall ad campaign

New York–Coach Inc. reported today that its first quarter profit rose 14% as demand for its handbags and leathergoods increased in the United States and abroad.

For the quarter ended October 1, Coach reported a net profit of $215 million, or 73 cents a share, up from $188.9 million, or 63 cents, a year earlier.

Net sales rose 15% to $1.05 billion from $912 million in fiscal first quarter 2011. Comparable store sales in North America increased 9.2% and 1% in Japan where business is rebounding, too. Direct-to-consumer sales, which now include its Singapore division, increased 17%. Indirect sales increased 4% due to smaller shipments into international wholesale and U.S. department stores.

The earnings report topped analysts’ average estimate that expected a profit of 70 cents a share on sales of $1.02 billion.

Gross margin declined to 72.8% from 74.2% last year as sourcing costs increased, the company said, adding that it expects to maintain a 72% to 73% for the rest of its fiscal year.

International Sales to Reach 50% Within 5 Years

“Given the current momentum of our business, strength of our product pipeline, breadth of our assortment and shoppers’ strong interest in accessories for gifts and self-purchase, Coach is clearly well positioned for another excellent holiday season,” Lew Frankfort, Coach’s ceo, said.

Frankfort also told analysts in a conference call today that Coach’s North American business benefitted from a big increase in tourist shoppers in its stores in Hawaii, Las Vegas, New York and other top tourists locations. Its growing men’s business also helped drive sales, too.

While Coach reported “consistent pattern” of spending in the United States, it expects half its sales will come from its international expansion within five years.

The company, which hopes to receive its second stock exchange listing on the Hong Kong market, expects sales of $300 million from Greater China this year—on the high range of its earlier forecast—as comparable store sales there rose in the double digits. Coach opened four new locations in China in the quarter and one in Macau, bringing the total to 71.

In 2012, Coach expects to open about 35 new international wholesale locations, expanding to new markets, including Brazil and Vietnam. Expansion in Europe is also planned. In the first quarter, Coach added one location within Printemps in France, two in Ireland and one in Spain, as well as its new Bond Street flagship in London. Another eight locations should open in Europe by the end of 2012.

Online sales also posted strong growth with its website sales rising 12% and mobile commerce accounting for about 15% of its Internet traffic, Frankfort said. The company also launched a factory flash sales site, an invitation-only, member site with 48-hour private sales events.

Factory Flash Sale Site Launched

As part of its holiday push, Coach is expanding on its Madison collection (retails of $358 up to $898 for limited edition) and gift items such as tablet computer covers, wristlets and under $100 gift items.

While the company held its own during the Great Recession with its Poppy collection, most under $300 retail, it now says its average handbag retail is back up: 22% of handbag sales in its first quarter were at above $400, up from 16% last year.

Coach opened two stores, including one men’s store and closed two locations, brining its North American total to 345 retail stores and 152 factory outlets. Frankfort said the company expects North American square footage growth of about 7% this year, in line with last year but primarily driven by men’s.

Robert W. Baird & Co. analyst Erika Maschmeyer told the Wall Street Journal that Coach’s success was due to a strong merchandise mix that appeals across generations.

“They are the only major leather-focused handbag retailer that really flows new product in and evolves their product as quickly as they do,” said Maschmeyer.


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