Coach shares fall after some handbag prices cut

LOS ANGELES (Reuters) - Coach Inc (COH.N) shares fell as much as 6 percent on Wednesday as skittish investors responded to news the handbag maker discounted certain styles by as much as 30 percent before the holidays.

But in a research note, analyst Christine Chen of Needham & Co said the sell-off was an overreaction given strong domestic and international growth at the company, and the shares had made up most of their losses by early afternoon.

Beginning on Monday, Coach lowered the prices on several styles of handbags. Chen said the discounting of 13 out of some 152 styles was to better compete with department store Macy's Inc (M.N), which has offered broad discounts this holiday season to lure cash-strapped consumers.

Coach said in a statement that the discounted styles would be discontinued after the holiday and noted its handbag and small leather goods category was continuing to see double-digit growth this season.

Chen wrote that customers have been comparing prices between Coach stores and Macy's and gravitating to the latter to save money. Despite the reduced prices, the impact on profit margins at Coach would likely be minimal, Chen wrote.

The discounted styles are on lower-priced handbags, suggesting that higher-end bags were still selling well, Chen said.

"We believe at historic bottom valuations, investors have overreacted to a few repriced SKUs (styles)," Chen wrote.

Coach shares trade at 12.7 times forward-looking projected earnings, at a discount to what Chen called a sector average of 16 times projected 2008 earnings.

Coach shares were down 2 percent, or 71 cents, in early afternoon trading to $30.42 after falling as low as $29.22 earlier in the session.

(Reporting by Alexandria Sage; Editing by Andre Grenon)