(Adds more comments from analyst, CEO, details on LVMH)
By Martinne Geller
NEW YORK, July 29 Coach Inc (COH.N) reported
higher quarterly profit that met Wall Street estimates, helped
by strength in Asia, but the weak economy at home led the
handbag maker to give a full-year outlook that fell short.
"We've decided to plan cautiously until we see concrete
evidence of a favorable shift in consumer spending," Coach
Chief Executive Lew Frankfort said in an interview. "We believe
the consumer malaise will continue well into 2009, and as such,
we are extremely cautious in our outlook."
Coach forecast sales growing about 13 percent in fiscal
2009, which began in June, after growing 22 percent in 2008.
Coach shares closed down 1.4 percent, while the Standard &
Poor's Retail Index .RLX closed up 4 percent.
Thomas Weisel Partners analyst Liz Dunn said some investors
were prepared for a lower-than-expected outlook from Coach,
whose stock has fallen nearly 14 percent this year through
Monday's close as sales growth has slowed.
"The market is trying to digest whether or not this
slowdown in growth is temporary or if it's more permanent,"
Dunn said. "And if it's more permanent, then it suggests the
multiple contraction that we've seen will be more permanent as
Dunn said she expects Coach to grow more slowly in the
future as it reaches a saturation point and the wider industry
Coach's Frankfort said Coach's handbag sales rose 14
percent in the first half of calendar year 2008, outperforming
the handbag industry, whose sales were up 5 percent to 10
percent. That would be down from the industry's prior growth
rates in the 15 to 20 percent range.
STRENGTH ACROSS THE POND
French rival LVMH (LVMH.PA) also saw its sales of fashion
and leather goods rise 14 percent on a like-for-like basis in
the first half of the year.
The maker of Louis Vuitton handbags, which are generally
much more expensive than the average Coach bag, posted
better-than-expected operating profit, affirmed its full-year
earnings target, and said "things should not get worse" on the
While the impact of rising gasoline and food prices,
tighter credit and falling home values are hitting consumers
"across the board", Dunn said LVMH could be in a slightly
"I think the true luxury customer is a little bit less
impacted by the current macro trends than the Coach customer,"
Dunn said, calling the average Coach customer an "accessible
luxury customer," who is generally upper-middle-class, rather
than very wealthy.
She said European luxury goods makers were being helped by
European tourists taking advantage of the weak U.S. dollar and
snapping up name brands on sale.
Coach's Frankfort said sales at Coach factory stores were
helped by a surge in international tourists.
WEAK DOLLAR BOOST
Coach said net income for its fiscal fourth quarter, ended
on June 28, rose 33 percent to $213.5 million, or 62 cents per
share, from $160.6 million, or 42 cents per share, a year
Excluding items such as a favorable tax settlement, the
company earned 50 cents per share, in line with analysts'
average estimate, according to Reuters Estimates.
Net sales for the quarter rose 20 percent to $781.5
million, despite consumer pressures including soaring food and
gasoline costs, declining home values and a credit card
Excluding the impact of the weak U.S. dollar, which
inflates the value of sales from overseas, net sales rose 16
percent, helped by new store openings.
Frankfort said a greater number of shoppers made store
purchases during the quarter but there was less store traffic
and customers' average purchase declined slightly. He said new
stores had better performance than expected.
Sales at North American stores open at least a year rose
The New York-based company said it expects 2009 sales of
about $3.61 billion and earnings of at least $2.25 a share,
including charges of 5 cents to 6 cents per share related to
the acquisition of its retail business is China.
Analysts on average were expecting full-year earnings of
$2.36 per share on revenue of $3.63 billion, according to
For the current first quarter, Coach forecast earnings of
44 cents per share on sales of about $765 million, below
analysts' average view, which called for earnings of 48 cents
on revenue of $784.4 million.
Coach shares closed at $26.00 on the New York Stock
(Reporting by Martinne Geller; Editing by Lisa Von Ahn, Steve
Orlofsky, Dave Zimmerman, Gunna Dickson)