April 21, 2009 / 11:06 AM / 9 years ago

UPDATE 4-Coach starts div, sees stabilization, shares jump

* 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 (Reuters) - 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 percent.

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 and France.

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 existing stores.

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 increases.

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)

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