TPR Tapestry Inc

By Lisa Beilfuss 

Handbag maker Coach Inc. said sales at existing North American stores rose at the best clip in four years during its latest quarter, evidence that it is benefiting from its turnaround efforts.

Still, the retailer's shares fell 3.3% to $40.10 in premarket trading as total sales fell short of expectations.

Chief Executive Victor Luis said in April that the company's efforts to add new and more stylish designs, upgrade stores and pull back promotions were finally paying off. The moves were aimed at reigniting the company's business and reversing sharp sales declines dragged by overexpansion and heavy discounting. In addition, Coach has announced layoffs and shuffled its management ranks.

In its June quarter, sales at North American stores excluding newly opened or recently closed shops rose 2%. The result is the best since the June 2012 quarter, and it edged in above the 1.9% that analysts expected. Total core sales across the continent jumped 9%, helped by an extra week of sales.

The fiscal fourth-quarter results "capped a year where we returned the Coach brand to growth" and "elevated brand perception," Mr. Luis said, despite "the significant and unanticipated volatility in tourist spending flows."

Mr. Luis highlighted continued growth in Coach's Stuart Weitzman brand, which it acquired last year, and double-digit increases in mainland China and Europe. The company brought in $84 million from Stuart Weitzman during the quarter, up from $79 million in the previous three months, and said total international sales climbed 15% from a year earlier.

As sales improved and Coach remained focused on expense management, it lifted its operating margin to 10.1% from 3.9% a year earlier.

Still, there are signs that Coach has more work to do. E-commerce sales rose just 1% -- matching the prior quarter's rate -- and North American department store sales dropped in the midteens rate.

Over all for the quarter, Coach reported a profit of $81.5 million, or 29 cents a share, up from $11.7 million, or 4 cents a share, a year earlier. Excluding certain items, earnings per share rose to 45 cents from 31 cents.

Revenue increased 15% to $1.15 billion. Analysts expected 41 cents in adjusted earnings per share on $1.17 billion in sales, according to Thomson Reuters.

For the year ending next June, Coach said it projects earnings to grow by a double-digit percentage and revenue to increase by a percentage in the low-to-mid single digits. Analysts, on average, were expecting earnings to rise 11% on a 4% increase in revenue, according to Thomson Reuters.

Coach also said it sees its operating margin between 18.5% and 19%, or 20% excluding the closure of about 25% of doors and a reduction in markdown allowances, among other items.

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

(END) Dow Jones Newswires

August 09, 2016 08:42 ET (12:42 GMT)

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