Lower sales hit Coach

United States
Published:  30 July, 2013

Coach shares dropped the most in six months on July 30 after saying second-quarter revenue fell at its established stores in North America and that the trend would continue as increasing competition hurts handbag sales.

Coach slid 8.7% in New York and earlier fell as much as 9.9% for the biggest drop since January 23. The New York-based company’s shares advanced 4.2% this year through yesterday, compared with an 18% gain in the Standard & Poor’s 500 Index.

The largest US luxury handbag maker has been losing ground in its main business as Michael Kors Holdings Ltd. (KORS), Fifth & Pacific Cos.’ Kate Spade and Tory Burch offer more styles of their own and increase distribution. Coach said in a statement that sales at stores open at least a year in North America sank 1.7% in the latest quarter. The average estimate of analysts surveyed by Retail Metrics was for a 0.6% increase.

Coach, which embarked on a restructuring earlier this year to transform itself into a lifestyle brand, also announced today that is cutting jobs, closing some North American stores and replacing more top executives. In addition, it reached a deal to sell its Reed Krakoff brand and said it still was open to acquisitions.

Coach’s negative sales trend will continue in the fiscal year that ends in mid-2014, Chief Financial Officer Jane Nielsen said on a conference call with investors and analysts.

The company is working to become a dual-gender lifestyle brand by adding more shoes, jewelry, fragrances and outerwear. Coach said a fuller presentation of the concept would be in the stores for the holiday season.

“We do see this as a multi-year journey,” Chief Executive Officer Lew Frankfort said on the call. “Until we actually experience traction with our stores, we are not going to forecast it.”

Net income in the three months ended June 29 slid 12% to $221.3 million, or 78 cents a share, from $251.4 million, or 86 cents, a year earlier, the company said. Revenue increased 5.8 percent to $1.22 billion, less than the $1.24 billion average of analysts’ estimates.

 

Executive Changes

Coach said Chief Operating Officer Jerry Stritzke and North American President Michael Tucci will leave the company in August. Coach also agreed to sell its Reed Krakoff brand to a group led by Krakoff, who will depart the company as executive creative director when the deal is completed.

Coach is closing 16 underperforming stores in North America as it slows square footage growth to 7% from 10% this year, Nielsen said on the call. The company has cut 200 jobs, she said.

Chief Commercial Officer Victor Luis will succeed Frankfort as CEO in 2014.

Source: Bloomberg

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