* Q2 EPS 67 cents, meets Wall Street's lowered estimate
* Halves North America store expansion plans
* Says to cut prices 10-15 pct in 2010
* Shares down 7.5 percent
(Adds analyst comment, updates share price)
By Martinne Geller
NEW YORK, Jan 21 U.S. handbag maker Coach Inc
(COH.N) reported a lower quarterly profit on Wednesday and said
it would cut prices on its handbags and scale back store
expansion plans, sending its shares down 7.5 percent.
Coach bucked a retail trend during the recent holiday
season by not discounting its full-priced merchandise, even as
other store chains took severe markdowns to lure shoppers.
In its 2010 fiscal year, which begins in June, the company
plans to introduce more handbags in the $200 to $300 range.
That would reduce overall prices 10 percent to 15 percent.
Chief Executive Lew Frankfort said in an interview that the
lower prices are meant to offer value to consumers "who are
clearly more reluctant to spend."
Frankfort said 2008 was the "most difficult holiday season
our company has experienced during my 30-year tenure," but
noted that traffic to Coach's full-priced North American stores
has stabilized in the weeks since the Christmas holidays.
But investors may worry that the company's pricing stance
is not aggressive enough, Pali Capital analyst Stacey Widlitz
said, as shoppers have grown to expect much sharper discounts.
"There is an overriding concern in general that in this
environment, when competition has 50 to 75 percent off sales in
every window and Coach is trying to manage its full-priced
strategy, where does that leave its traffic opportunity?" she
In the fiscal second quarter, which ended on Dec. 27, sales
were hurt by heavy discounts at department stores and Coach
factory stores. Coach's full-priced stores were also hurt as
bargain-hunting shoppers looked elsewhere.
Second-quarter net income fell to $216.9 million, or 67
cents per share, from $252.3 million, or 69 cents per share, a
The profit met analysts' estimates, which were cut earlier
this month after the maker of high-end bags, wallets and
accessories warned that earnings for the critical holiday
quarter would fall.
Quarterly sales fell nearly 2 percent to $960 million.
NORTH AMERICAN SALES SINK
Quarterly sales at North American stores open at least a
year fell 13.2 percent. Sales in Japan rose 15 percent due to a
stronger yen. Excluding the currency impact, sales in Japan
fell 1 percent.
Sales in China rose at a double-digit rate, and Coach said
it plans to expand the distribution of its products there.
The New York-based company halved its fiscal 2010 North
American expansion plans, saying it intends to open about 20
new locations instead of its former plan for 40. It said it
will also suspend retail store expansions.
Coach did not provide an earnings outlook for the rest of
the fiscal year but tried to assure investors that it is
financially solid by pointing out that it has an essentially
debt-free balance sheet and a significant cash position.
Despite lower overall spending, Coach said it is increasing
its share of the U.S. handbag and accessory market.
Coach shares were down $1.19 to $14.68 in midday trade on
the New York Stock Exchange.
(Additional reporting by Aarthi Sivaraman; Editing by Matthew
Lewis and John Wallace)