(Adds sales forecast, CEO comments, updates share activity)
By Phil Wahba
Jan 22 Coach Inc's sales in North
America fell sharply during the key holiday quarter as the
handbag maker continued to lose customers to fast-growing
The New York company, known for its Poppy handbags, on
Wednesday reported a 13.6 percent decrease in comparable-store
sales in North America.
It was the third straight quarter of decline in a market
that accounts for 70 percent of its revenue, and a much deeper
drop for the holiday quarter than Coach forecast in October.
Coach shares were down 6.2 percent to $49.29 in late morning
There were some bright spots in Coach's results: sales in
China rose 25 percent, quelling fears a slowdown in luxury
spending growth there would hurt Coach. And sales in North
America for handbags priced above $400 were also up.
Still, company executives expect Coach's problems to persist
in North America in the next six months, predicting continued
sales drops there.
Relief may only come in the fall, when the first collection
designed under its new creative director, Stuart Vevers, hits
Until then, Coach will have to make do with offerings many
analysts said are stale and less appealing than merchandise
offered by rivals such as Michael Kors Holdings Ltd,
kate spade and Tory Burch, which are aggressively
expanding their fleets of stores.
"These guys are definitely losing share. Fashionwise,
they're missing the beat," Edward Jones analyst Brian Yarbrough
Between 2011 and 2012, Coach's share of the U.S. handbag
market fell to 17.5 percent from 19 percent, according to
Euromonitor International. Michael Kors' market share rose to 7
percent from 4.5 percent.
North American sales fell 9 percent to $983 million in the
second quarter ended Dec. 28, a startling drop in a women's
handbags and accessories market Coach executives said grew by a
"high single-digit" percentage during the period.
Chief Executive Victor Luis is pinning Coach's turnaround
hopes on Vevers' collections making Coach fashion-forward again.
Luis told analysts on a call that Vevers was "providing a
fashion relevance for the brand like we have never had."
Vevers joined Coach from Loewe - a luxury handbag brand
owned by LVMH - in September, replacing longtime
creative director Reed Krakoff.
Coach's overall revenue fell 5.6 percent to $1.42 billion,
in the second quarter, while net income dropped to $297.4
million, or $1.06 per share, from $352.8 million, or $1.23 per
share, a year earlier.
Analysts on average had expected earnings of $1.11 per share
on revenue of $1.48 billion, according to Thomson Reuters
To win back shoppers, the 73-year-old company is trying to
offer more footwear and fashion to become a lifestyle brand.
Coach will be presenting a collection at New York Fashion Week
next month for the first time.
Chief Executive Victor Luis, who took the reins this month
from longtime CEO Lew Frankfort, told Reuters that Coach is
"rebalancing" its merchandise selection and increasing its
offerings of handbags priced $400 or more.
After the 2008-09 recession, Coach had ramped up its
selection of lower-price handbags.
During the 2013 holiday season, Coach had to contend with a
problem many retailers have complained about: a drop in traffic
to shopping malls, and fewer shoppers coming into its stores.
Still, kate spade and Michael Kors, which operate many stores in
the same malls as Coach, are expected to report sales gains.
Coach's poor sales led to a surplus of merchandise it said
it would clear through its factory outlets, raising the specter
of more pressure on its profit margin. Inventory levels were up
12 percent at the end of quarter, while companywide sales fell 3
percent, stripping out the effect of currency fluctuations.
Its gross profit margin fell 3 percentage points to 69.2
percent of sales during the quarter, hurt by deep discounting.
The 2013 holiday season was the most discount-driven period
since the recession, leading many large U.S. retailers to slash
profit forecasts earlier this month.
(Reporting by Aditi Shrivastava and Phil Wahba; Editing by Ted
Kerr and Andrea Ricci)