UPDATE 3-Coach's North American decline deepens

Tue Apr 29, 2014 12:45pm EDT

(Recasts throughout to add details from conference call)

By Phil Wahba

April 29 (Reuters) - Coach Inc's North American woes deepened last quarter as the upscale retailer continued to lose market share and the new line of clothes, shoes and handbags it is banking on to reverse its fortunes remained months away from hitting stores.

The New York-based company on Tuesday reported a 21 percent drop in sales at North American stores open at least a year for the three months ended March 29, its fourth straight decline.

In contrast to its booming China sales, Coach is expecting another big decline this quarter in North America, where it gets about 70 percent of its revenues.

Coach shares fell 9 percent to $45.91 in morning trading.

Known for its Poppy handbags, Coach has struggled to keep up with its fast-growing affordable luxury competitors, particularly Kate Spade & Co and Michael Kors Holdings Ltd, whose handbags are gaining popularity.

Coach's poor U.S. sales in the quarter compared with what Chief Executive Officer Victor Luis estimated was the industry's "high single-digit percentage rate" increase in handbag sales.

The U.S handbag market was $7.4 billion in 2013, according to Euromonitor International.

Last year, to win back customers, the company said it would expand its assortment and become a so-called lifestyle brand, with a bigger selection of shoes and clothes than before, in addition to handbags.

It hired British designer Stuart Vevers to replace longtime creative director Reed Krakoff.

Vevers' first collection, set to hit stores in September, received positive reviews in the fashion press during New York Fashion Week in February, but Luis told analysts on a call that Coach had not tested the collection with customers.

"Good feedback from media is not the same as customers coming in the doors - they're having trouble bringing in younger customers," said Edward Jones analyst Brian Yarbrough.

Luis, who took the reins in January, said that up to 85 percent of items in its full-service stores would have Vevers' imprimatur by the autumn.

There were some bright spots in Coach's results: Luis said sales of handbags priced at $600 or more were good. But the company continued to struggle with its bread-and-butter $400 and under bags.

And a 25 percent sales increase in China helped limit some of the decline in North America. Coach also did well with men's items, where sales rose 20 percent.

Overall revenue fell 7.4 percent to $1.1 billion in the third quarter ended March 29, less than the $1.13 billion analysts expected, according to Thomson Reuters I/B/E/S.

Quarterly net income fell to $190.7 million, or 68 cents per share, from $238.9 million, or 84 cents per share, a year earlier. (Reporting by Phil Wahba in New York; Editing by Sofina Mirza-Reid, Bernadette Baum and Tom Brown)