* Q3 EPS 38 cts, excluding charge, vs Wall St view 36 cts
* Initiates quarterly cash dividend
* Says North American business stabilizing
* Shares jump 14 pct
(Adds comments on overseas expansion, updates stock price)
By Nicole Maestri
NEW YORK, April 21 Coach Inc's (COH.N) profit
surpassed Wall Street expectations and the retailer initiated a
dividend on Tuesday, saying sales have begun to stabilize at
its North American handbag and accessories stores.
The shares of the U.S. leather goods company jumped 14
percent in early afternoon trading to $20.75.
"Our business has stabilized here in North America,"
Chairman and Chief Executive Lew Frankfort said in an
interview. "I think that consumer sentiment is at a low and is
leveling off and will shortly start to improve."
The comments were a bright spot among luxury goods
retailers, which have seen sales and profits plunge as
consumers, rattled by rising unemployment and a shaky housing
market, pull back on spending.
"We're seeing continued signs of stabilization throughout
retail," Barclays Capital analyst Robert Drbul said, although
he cautioned that sales results are still "less negative"
instead of positive.
"Coach is really managing through these many challenges as
well as can be expected," he added.
Coach's profit fell to $114.86 million, or 36 cents per
share, in the third quarter ended on March 28 from $162.4
million, or 46 cents per share, a year earlier.
Excluding a charge, the company said earnings per share
were 38 cents. Analysts on average were expecting 36 cents,
according to Reuters Estimates.
Sales fell to $739.9 million from $744.5 million. Sales at
North American stores open at least a year, or same-store
sales, declined 4.2 percent in the quarter, an improvement from
the second quarter, when they dropped 13.2 percent.
The New York-based company has stayed away from offering
deep discounts at its full-priced stores, a strategy that has
preserved the status of its brand, but hurt its sales.
To appeal to cost-conscious shoppers, Coach said in January
it would offer more bags in the $200 to $300 price range in
fiscal 2010, which would reduce overall prices 10 percent to 15
On a conference call, Coach said that, beginning in its
first quarter, which starts in June, about 50 percent of the
handbags it offers in an average store will be priced between
$200 and $300. That compares with an average 30 percent
offered at those prices this fiscal year.
"We don't go on sale in our full priced stores," Frankfort
said in the interview.
But he said that when consumers are cautious and looking
for value, "we need to offer it by providing a balanced
assortment with a greater emphasis on lower price points that
will be much more reachable."
Coach said sales in Japan rose 1 percent on a constant
currency basis in the quarter, while in China same-store sales
rose at a double-digit rate.
The retailer said it is developing a strategy to expand in
the next few years into Western Europe, starting with England
In January, as U.S. consumers showed a reluctance to spend,
Coach halved its fiscal 2010 North American expansion plans and
on Tuesday it said it will focus on restoring productivity in
It is limiting its new North American retail store openings
in fiscal 2010 to 20 locations, down from the 40 stores it has
opened in each of the past two years.
In Japan, Coach said it will open seven new locations in
its coming fiscal year, compared with five this year. It also
plans to open about 10 new locations in China next year.
The company forecast capital spending in fiscal 2010 of
$110 million, down "substantially" from 2009.
The retailer also expected to save $50 million in fiscal
2010 through cost cuts, such as eliminating merit-based salary
Coach said its board voted to initiate a cash dividend at
an annual rate of 30 cents per share.
(Additional reporting by Martinne Geller; Editing by Dave
Zimmerman and Andre Grenon)