Coach Q2 Beats Estimates, Profits Up 26%

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New York—Similarly to recent earnings reports from European luxurygoods companies, Coach Inc. said today its second-quarter profit rose a better-than-expected 26%.

Net income rose to $303.4 million, or $1 a share, in the three months ended Jan. 1, up from $241 million, or 75 cents, earned in the year-earlier second quarter. Sales rose 19% to $1.26 billion, Coach reported. Revenue rose 19% year-over-year to $1.26 billion. Analysts’ average estimates were for the leathergoods and accessories company to earn 97 cents a share on sales of $1.21 billion.

Lew Frankfort, ceo, said Coach successfully introduced products steadily throughout the holiday season, instead of previously “front loading” early in the season, to spur demand. The company also added digital gift cards and increased its social media presence.

North America, Asia Grow

“We’re extremely pleased with the strong holiday sales and earnings growth we achieved, marking a continuation of the trends we have seen throughout the past calendar year. Our performance–led by exceptional North American comparable store sales–reflected the brand’s vibrancy across channels and geographies,” Frankfort added.

The company predicted an increase in sales and profit at least 10% for the rest of the year. Its board of directors authorized the repurchase as much as $1.5 billion of shares by June 30, 2013.

Coach weathered the recession by going after the “affordable luxury” segment, lowering the average handbag retails by 10% and introducing its successful Poppy collection.

North American comparable store sales rose 12.6%. Coach has been expanding its international base in Europe as well as China where it has experienced increased sales to men, too. In Japan, sales were flat excluding currency translations but climbed 8% due to a stronger yen. China, where Coach now has 52 stores, rose at a double-digit rate, the company said. The brand had 347 retail stores and 129 factory outlets at the end of the quarter in North America. In Japan Coach had 171 retail locations as well as 52 stores in China.

The strong showing in North America “is solid proof of brand strength/relevance,” said analyst David Schick of Stifel Nicolaus & Co.

“In China, where Coach’s channel strategy mirrors the U.S. with flagships, retail, factory stores and wholesale, Coach see opportunity to double its market share to 10% driving $500 million in sales by 2014,” reported Marie Driscoll, Standard & Poor’s equity analyst. 

Direct-to-consumer sales increased 17% to $1.1 billion in the latest quarter. However, gross margin missed estimates, coming in at 72.4% compared with expectations of 73.2% as the company said “channel mix” offset sourcing cost benefits. Selling, general and administrative expenses as a percentage of sales narrowed modestly in the last quarter, to 36.5% from 36.6%.