TPR Tapestry Inc

Coach Inc. said sales continued to improve in its latest quarter, as the handbag and accessories maker's efforts to revamp merchandise and reign in promotions boosted sales.

Those moves have cost money and bit into earnings, but the retailer still managed to top analysts' profit expectations. Coach shares, down 7% over the last three months through Monday's close, rose 4.4% premarket.

After overexpansion and heavy discounting damaged the brand, Chief Executive Victor Luis has scaled back promotions, shut underperforming stores and upgraded design and material quality—efforts that have come as fellow handbag makers Michael Kors Holdings Ltd. and Kate Spade & Co. have similarly struggled with a slowdown in the overall handbag market.

In the latest quarter, Coach booked $14 million in charges stemming from its transformation. Amid higher overall costs, Coach's gross margin slipped to 67.4% from 68.9% a year earlier. While costly, the moves have helped sales recover.

North American sales for the Coach brand fell 7% in the December quarter, or 6% on a currency-adjusted basis, with sales excluding newly opened or closed Coach stores down 4%. Though still steep, the decline in North American sales reflects a continued improvement: sales in the region fell 11% in the third quarter and 20% in the second period.

Coach, meanwhile, continues to see rising sales outside of the U.S. In mainland China, the company logged a double-digit sales increase, despite a slowdown in the world's second-biggest economy that is hurting other American companies. Coach also said it saw double-digit sales growth in Europe.

The Stuart Weitzman brand, which Coach bought last year, continued to bolster results. Performance in the segment surpassed expectations, Mr. Luis said, with boots selling particularly well even amid unseasonably warm weather across most of the country.

In all, Coach booked a profit of $170.1 million, or 61 cents a share, down from $183.5 million, or 66 cents a share, a year earlier. Excluding certain items, earnings per-share fell to 68 cents from 72 cents a year earlier.

Revenue increased 4.4% to $1.27 billion. Adjusted for currency fluctuations, Coach said, total sales rose 7%. Analysts projected 66 cents in adjusted per-share profit on $1.28 billion in revenue, according to Thomson Reuters.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

January 26, 2016 09:35 ET (14:35 GMT)

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