Jan 23, 2013
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Coach sales miss Wall St forecast on slow North America

Jan 23, 2013

Upscale leather-goods maker and retailer Coach reported holiday quarter revenue below Wall Street forecasts as a tough economy and stiff competition in the women's handbags segment hurt sales in North America. Shares tumbled 15.6 percent to $51.20 in premarket trading.

Sales at stores open at least a year in North America, still its biggest market by far, fell 2 percent during the quarter, only their third quarterly decrease in 11 years.

The Legacy collection at Coach (photo: Coach.com)

Coach Chief Executive Lew Frankfort called the holiday season "challenging," because of consumer anxiety in the United States about the "fiscal cliff" which could have led to sharp tax increase in 2013.

Business at both its full-service stores and factory outlets, which sell less expensive merchandise, was also "heavily" hit by a drop in the number of shoppers visiting malls and outlet centers.

The company resisted pressure to offer more deals in a bid to protect both its margins and its brand image.

"Our modest growth was highly profitable," Frankfort told Reuters.

Coach was also pinched by what it called a "promotional environment" in which retailers across the spectrum slashed prices to lure shoppers.

"Coach was not as promotional as others in the mall, therefore, lost traffic," Wells Fargo analyst Evren Kopelman wrote in a research note.

The holiday shopping season was weak for U.S. retailers, with sales rising 3.1 percent in November and December, according to the National Retail Federation, well below original forecasts.

Coach is also facing fast-growing rivals like Michael Kors Holdings Ltd, privately-held Tory Burch, and Fifth & Pacific Cos Inc's kate spade, whose same-store sales rose 27 percent last quarter.

Overall revenue in Coach's fiscal second quarter, which ended December 29, rose 3.8 percent to $1.5 billion, missing analyst projections for net sales of $1.6 billion, according to Thomson Reuters I/B/E/S.

There were nonetheless some bright spots for Coach. In China, still a small market for the New York-based company but the cornerstone of its international expansion, total sales were up 40 percent.

Coach's push to build up its men's business that includes wallets is paying off, with the company set to have annual sales in that segment rise 50 percent for the fiscal year.

Net income in the quarter was $352.8 million, or $1.23 per share, compared with $347.5 million, or $1.18, a year earlier, and 5 cents below Wall Street estimates.

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