* Coach loses customers to Michael Kors, other hot brands
* Two more executives depart amid big changes at the top
* Coach shares fall 8 pct
By Phil Wahba
July 30 Coach Inc disclosed a new round
of executive departures on Tuesday and reported disappointing
handbag sales in North America, dashing investor hopes that the
leather goods maker will rebound anytime soon.
Shares of New York-based Coach, known for its Poppy
handbags, were down 8.2 percent at $53.06 in afternoon trading.
Sales at Coach's stores open at least a year fell 1.7
percent in the latest quarter in North America, where Coach gets
63 percent of sales. It continues to lose shoppers to hot brands
such as Michael Kors, kate spade and Tory Burch.
The company told Wall Street on a conference call not to
expect any improvement in the new fiscal year, begun June 30. It
said in February that it planned to offer more footwear and
clothing by the holiday season to reignite sales.
Those efforts come at a time of significant change at the
top, a source of concern for investors. Coach is getting a new
chief executive and a new creative director and is looking for a
chief operating officer.
"We agree there's a lot going on," long-time Chief Executive
Lew Frankfort said, acknowledging investor qualms. But he
disputed the notion that the management changes were disruptive.
"We have a seasoned group of Coach veterans taking on these
roles," he said.
In January, Coach said the head of its international
business, Victor Luis, would succeed Frankfort next year. Its
longtime creative director, Reed Krakoff, credited with fueling
Coach's explosive growth in recent years, is striking out on his
own now that he has bought his namesake brand from Coach.
On Tuesday, Coach said Mike Tucci, the head of its North
America business, and Jerry Stritzke, its operations chief, were
leaving the company. Analysts had expected this, given that the
two had been considered candidates to succeed Frankfort.
Still, it's a lot of change all at once.
"The combination of all of the departures could be a cause
for concern because it comes at a time when they're trying to
right the ship (particularly in North America) and potentially
have issues on the creative side," John Del Vecchio, a portfolio
manager with AdvisorShares Ranger Equity Bear ETF, an all-short,
actively managed domestic exchange-traded-fund, said in an
LOSS OF MARKET SHARE
Coach said its overall revenue rose 5.8 percent to $1.22
billion in the fiscal fourth quarter, ended June 29, helped by
gains in its men's merchandise and in China. That was below the
$1.24 billion Wall Street was looking for.
The company's problems centered on weak sales in its
bread-and-butter business - women's handbags in North America.
The drop in comparable-store sales there was the second in three
"They have lost some market share, no question about it,
especially among young, fashion-conscious shoppers," Edward
Jones analyst Brian Yarbrough told Reuters.
Executives acknowledged as much, saying the North American
handbags and accessories market was expected to rise by a low
double-digit percentage in 2013.
Coach plans to close 16 weaker North American stores this
year, but said it would expand a few as well.
Despite the weak North American results, there were some
positive signs. Gross profit margin rose slightly, suggesting
Coach has not had to discount much.
Francine Della Badia, who heads North American merchandising
and is succeeding Tucci, said sales of handbags priced at $400
or more had improved. Earlier this year, Coach was struggling to
sell those pricier products - a smaller but important part of
Sales to department stores also ticked up and the company
said it will continue to renovate some of its shops at key
Excluding the effect of currency fluctuations, international
sales rose 17 percent, helped by a 35 percent jump in China.
Net income for the quarter fell to $221.3 million, or 78
cents per share, from $251.4 million, or 86 cents per share, a
year earlier. Excluding some one-time items, Coach earned 89
cents per share, in line with Wall Street forecasts.