The company reported disappointing results in the North American region, where it continues to struggle in the women’s handbags and accessories market, owing to rising competition from fashion newcomers such as Michael Kors, Kate Spade and Tory Burch.

Coach’s gross margin dropped by 100 basis points during the quarter and operating margin also slipped to 27.9% as compared to 28.6% in Q1 last year. Analysts expect profitability to continue to decline in annual terms during the coming quarters. However, the international and men’s businesses saw strong growth during the quarter and are expected to be long-term growth drivers for the company.

Coach’s sales in North America dropped by 1% in Q1 fiscal 2013-14, with 1% and 6.8% fall in direct sales and comparable store sales respectively. This significant decline in comparable store sales indicates that Coach is losing market share to newer fashion players such as Michael Kors. The decrease in sales was also attributed to weak in-store traffic trends during the quarter.

The future guidance is also less promising as the company’s management projected the North American comparable stores sales growth to decline in the high single-digits for the rest of the fiscal year. North America, contributes around two-thirds of Coach’s sales and intense competition in the women’s handbags and accessories market in the region will be closely tracked by the market in the coming months as it will play a vital role in the company’s share price movement. Analysts believe Coach will continue to struggle in the North American market in the near future due to increased competition.

Coach is undertaking a transformation of its brand to move from an accessories brand to a lifestyle brand. The company has introduced a collection of lifestyle categories such as bags, outerwear and footwear in this quarter as part of this move. It has also enhanced its marketing activities to spread this new brand image among customers.