July 28, 2009 / 11:19 AM / 9 years ago

CORRECTED - UPDATE 2-Coach Q4 profit matches view; unveils new line

(Fixes quarter in headline)

* Q4 adj EPS $0.43 matches Wall St view

* Sales slip less than 1 percent

* Announces launch of new brand

* Shares fall almost 7 pct premarket (Adds CEO, analyst comments, details, background, share activity, byline; changes headline)

By Ben Klayman

CHICAGO, July 28 (Reuters) - U.S. leather goods company Coach Inc COH.N reported lower quarterly profit on Tuesday, matching expectations, but shares fell almost 7 percent as investors worried about increased investments, including the launch of a new brand.

Wall Street Strategies analyst Brian Sozzi also pointed to a lack of an outlook for the current fiscal year and weaker-than-expected gross profit margins for the shares’ decline.

“With increased investment spending in China, sales volatility here at home, lower-price points within the overall assortment, and increased factory channel sales mix it appears returns will take a hit in” fiscal 2010,” Sozzi said in a research note.

Coach, which makes high-end handbags and other accessories, said in April that sales at its North American stores had begun to stabilize. The comment was rare good news for luxury goods makers, whose sales and profits have plunged as consumers cut back in the recession.

Chief Executive Lew Frankfort said the trend was continuing. “It’s early days for our new quarter, but four weeks into it, we definitely see a sequential improvement in traffic,” he said in a telephone interview.

Frankfort said the economy is still clearly in a severe recession and consumers will be extremely cautious for the rest of the year, but he added that Coach will outperform other brands.


Net income fell to $145.8 million, or 45 cents a share, in the fourth quarter ended June 27, from $213.5 million, or 62 cents a share, a year earlier.

Excluding one-time items, profit was 43 cents a share, matching what analysts polled by Reuters Estimates had expected.

Sales slipped to $777.7 million from $781.5 million. Analysts expected $783.4 million.

Sales at North American stores open at least a year, or same-store sales, fell 6.1 percent.

Sales in Japan fell 10 percent on a constant currency basis, while dollar sales declined 4 percent. The company said demand in China is very strong, with same-store sales rising at a double-digit rate.

Coach operates factory stores where prices are lower, but its full-priced stores have avoided discounts in a strategy that has preserved the status of its brand but hurt sales.

To appeal to more cost-conscious shoppers, Coach is introducing more bags in the $200 to $300 range, and has said it expects the move to reduce overall prices by 10 percent to 15 percent.

In June, Coach launched the Poppy line of bags, which feature bright youthful colors and graphic prints. The average price of a Poppy bag is $260, about 20 percent less than the usual Coach purse. It said there has been a strong initial response to the fall collections, especially Poppy.

“Poppy is blowing out,” Frankfort said.

Coach reiterated it will open only 20 new retail stores in North America this year, down from the 40 stores in each of the past two years. However, it accelerated plans for China, saying it now expects to open about 15 new stores, up from about 10 previously targeted.

The company also announced a new label, Reed Krakoff — named for the creative force responsible for turning around the once-staid leather goods maker — that it will launch in the fall. It will offer women’s clothing with average prices ranging from $495 to $1,195, as well as handbags, accessories, footwear and jewelry.

The company may expand the line into men’s categories, but also is looking to expand the Coach brand more actively in men’s as well, Frankfort said.

Shares of Coach fell 6.9 percent in premarket trading to $26.48 a share. (Reporting by Ben Klayman; Editing by Lisa Von Ahn and Jeffrey Benkoe)

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