By Suzanne Kapner and Lisa Beilfuss
Coach Inc.'s sales and profits plunged in its latest quarter,
showing the difficulty the retailer faces in scaling back
promotions while trying to improve the quality of its products.
Sales at its existing retail stores in North America declined
19%. Internationally, sales at existing stores fell 5%; stripping
out currency fluctuations, they rose 3%. Overall, Coach sales fell
12% to $1 billion.
Overall profit plummeted to $11.7 million from $75.2 million,
dragged down by $66 million in restructuring-related costs and $21
million in charges associated with the acquisition of Stuart
Weitzman earlier this year. On a per-share basis, earnings fell to
4 cents from 27 cents a year earlier. Excluding special items,
earnings per share fell to 31 cents from 59 cents.
The declines come as Chief Executive Victor Luis tries to turn
the company around after overexpansion and heavy discounting
tarnished the handbag and accessories maker. Coach has dialed back
on promotions, improved its designs and material quality, and
closed underperforming stores.
Its results beat Wall Street's forecasts and the retailer issued
an upbeat outlook for the next 12 months, lifting shares 1.7% in
afternoon trading. The stock is down 19% this year through Monday's
market close.
The company said it expects full-year revenue to grow by
low-single digits, adjusted for currency, higher than the analysts'
forecast of 1%, according to Thomson Reuters.
Mr. Luis said the turnaround is going well and customers are
responding positively to new handbag designs. Stores that had been
renovated to a more luxurious format with dark wood paneling have
experienced positive sales gains, improved traffic and higher
average purchases, he said.
About 15% of Coach's 965 stores world-wide are in the new
format, including renovations and newly opened stores. As of the
end of next year, an additional 160 stores will be in the new
design.
Fewer discounts in the latest quarter helped Coach's gross
margin rise to 68.5% from 62.2% a year ago. The company has scaled
back online promotions to two a month in the most recent quarter,
from three a week a year ago.
Coach is attempting to reposition itself at a time of slowing
growth for the overall handbag market. Mr. Luis said growth for the
premium handbag market slowed to the low-single-digit range
recently from the mid-single-digit range several months ago.
Rival handbag makers Michael Kors Holdings Ltd. and Kate Spade
& Co. also have struggled with the slowdown. Their shares are
down so far this year about 49% and 36%, respectively. Mr. Luis
said he viewed the slowdown as an opportunity for Coach to gain
share.
Write to Suzanne Kapner at suzanne.kapner@wsj.com and Lisa
Beilfuss at lisa.beilfuss@wsj.com.
Corrections & Amplifications
On a per-share basis, Coach's earnings fell to 4 cents from 27
cents a year earlier. An earlier version incorrectly said the
company earned 68 cents a year earlier. (Aug. 4, 2015)
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