Coach's profit boosted by fewer discounts

(Reuters) - Handbag maker Coach Inc COH.N posted a 17 percent rise in second-quarter profit as the company reined in discounts in the United States, and forecast a strong end to the year.

People walk past a Coach store on Madison Avenue in New York, January 23, 2013. REUTERS/Carlo Allegri

The company’s shares rose as much as 3.8 percent to $37.33 on Tuesday.

Coach has limited promotions and pulled out of more than 250 department stores as it tries to win back its premium-brand cachet.

The company’s sales at North American stores open at least a year rose 3 percent, their third consecutive quarterly rise, beating analysts’ estimate of 2.4 percent, according to research firm Consensus Metrix.

Although the company forecast a marginal decline in third-quarter revenue on a conference call, it said its fourth quarter stands to gain from the Easter holiday and a shift in the timing of its international wholesale shipment to the final quarter.

Chief Executive Victor Luis said he expected challenges affecting the handbag industry, including increased competition and promotional activity, to persist for the rest of 2017.

The company said it expected 2017 revenue to rise in the low single-digit range due to a stronger dollar. Coach had previously forecast low to mid-single-digit growth in revenue.

“Coach is executing well,” ROE Equity Research analyst Laura Champine told Reuters.

“Revenue guidance is lower solely on foreign exchange shifts, so this is not related to business fundamentals.”

The company’s net income rose to $199.7 million, or 71 cents per share, in the second quarter ended Dec. 31 from $170.1 million, or 61 cents per share, a year earlier.

Excluding items, Coach earned 75 cents per share. Analysts on average had expected a profit of 74 cents per share, according to Thomson Reuters I/B/E/S.

Net sales rose to $1.32 billion from $1.27 billion, in line with analysts’ average estimate.

International sales rose 2.5 percent to $448 million in the quarter, helped by strong sales in China and the UK, where it has benefited from a weaker pound and strong demand.

Reporting by Jessica Kuruthukulangara in Bengaluru; Editing by Anil D’Silva