July 31, 2012 / 1:21 PM / 5 years ago

Coach hurt by soft sales in North America

(Reuters) - Upscale leather goods maker Coach Inc COH.N reported another quarter of slowing growth in North America, its top market, hurt by the deals it needed to offer price-conscious shoppers to get them into its outlet stores.

Sales at North American stores open at least a year rose 1.7 percent during the quarter that ended June 30, well below what Wall Street was expecting and the pace of preceding quarters.

Coach has for years benefited from the appetite for so-called affordable luxury. But it is facing stiff competition in North America from fast-growing brands like Michael Kors Holdings Ltd (KORS.N) and Fifth & Pacific Cos Inc’s FNP.N kate spade.

At the same time, a slow U.S. economy has caused consumers to look more carefully at what they buy.

“You are worried about the core middle-income U.S. consumer,” Brian Sozzi, chief equities analyst at NBG Productions said, noting that analysts were expecting a North American same-store sales gain of at least 6 percent.

Overall revenue in the fourth quarter rose 12 percent to $1.16 billion, below the $1.2 billion Wall Street analysts were expecting, according to Thomson Reuters I/B/E/S.

Net income was $251.4 million, or 86 cents per share, compared with $202.5 million, or 68 cents, a year earlier. That was a penny above what Wall Street executives were expecting.

Coach’s shares fell 14.2 percent to $52 in premarket trading, putting them 34.7 percent below their yearly high, hit in March.

In a statement, Coach Chief Executive Lew Frankfort faulted “an increasingly promotional environment” in North America for slower growth at its factory outlet stores, where it sells products that are often priced 50 percent less than merchandise at its full-service stores.

    Earlier this year, Coach eliminated the use of coupons at its outlets. But in June, the retailer, famed for its handbags and wallets, backtracked and reinstated coupons, showing how price-sensitive U.S. consumers remain.

    Frankfort had told Wall Street analysts in April that Coach has the pricing power to wean outlet shoppers off of coupons because it alone sells these products.

    Frankfort on Tuesday warned of “the impact of the muted consumer environment in North America and a softening global macroeconomic outlook” for the new fiscal year even as the company says its goal of double-digit percentage gains in sales and profit remain unchanged.

    Coach’s sales at U.S. department stores such as Macy’s Inc (M.N) and Nordstrom Inc (JWN.N), which account for 6 percent of company sales, were hurt by a drop in shipments.

    The company continued to benefit from its overseas business. Same-store sales in China, where it is expanding quickly, rose by a double-digit percentage. Sales in Japan, its second-largest market, rose 16 percent, excluding the impact of currency.

    Reporting by Phil Wahba in New York; Editing by Maureen Bavdek

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