Coach Q2 Profit, Sales Slow on “Challenging” North America

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Newest crossbody style in Coach’s Legacy collection, the mini Tanner Tote

New York—Shares of Coach Inc. fell by double digits in early trading today after the luxury leathergoods company reported slower sales in North America–though international business continues to shine.

For the quarter ended Dec. 29, Coach posted a net income increase of 1.5% to $352.8 million, or $1.23 a share, up from $347.5 million, or $1.18 a share, a year ago, helped by a 12% increase in international sales to $411 million.

Total net revenue rose 3.8% to $1.5 billion, but the second quarter results missed analysts’ average estimate expecting a profit of $1.28 a share on sales of $1.6 billion.

Coach reported gross margin was flat at 72.2%

Lew Frankfort, chairman/ceo, said, “We were disappointed by our performance in North America, where the holiday season proved challenging.” Total sales in North America increased 1% to $1.08 billion but comparable store sales were down 2%. “At POS, sales in North American department stores were modestly below prior year while shipments into this channel declined.”

International Sales Remain ‘Robust’

“Importantly, we maintained our pricing strategies despite the retail climate, protecting our brand proposition,” Frankfort said.

The company blamed a “muted macroeconomic environment,” while “the women’s handbag category competition intensified and promotional activity increased,” Frankfort said.

Coach’s international sales, however, proved resilient. China continued to be strong with total sales up 40% and comparable store sales up in double digits. In Japan, sales declined 2% while dollar sales were down 7% from the previous year due to the weaker yen.

The company said shipments to international wholesale accounts declined “modestly, while underlying POS sales trends remained robust.”

Coach has had more than three years of profit increases thanks to its strength in U.S. direct-to-consumer sales, global expansion and expanding its men’s business here and in Japan. Fiscal 2013 is supposed to be an investment year for the brand, which is accelerating acquisition of retail operations in Asia, including buying domestic Coach retail businesses in Malaysia and South Korea.

At the end of its second quarter, Coach has 356 retail stores and 189 factory stores. In China, 13 new locations were opened during the quarter, all on the mainland, bringing the total to 117. In Japan, Coach opened five net locations taking the total to 193. In addition, at quarter end, the company operated seven locations in Singapore, 27 in Taiwan, 10 in Malaysia and 48 in Korea.

“Our international growth remained robust, led by China, which is on course to generate at least $400 million in sales this year,” Frankfort said. “In addition, we’re pleased with the growth of our men’s business, which is on track to generate sales of over $600 million globally in fiscal year 2013, up about 50%.”

Christine Putur Named CIO

In other news, Coach named Christine Putur as executive vice president and chief information officer, effective Jan. 22.

Putur joins Coach from Staples, Inc., where she was senior vice president and chief information officer. In her role, Putur was responsible for IT strategy and implementation globally for the company. Putur succeeds Tom Britt, who announced his departure from Coach last year.


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