Coach fiscal 1Q profit falls slightly; sales rise

By MAE Anderson

posted: 37 DAYS 9 HOURS AGO

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NEW YORK -Luxury handbag maker Coach Inc. said Tuesday its new lower-priced handbag lines such as its colorful Poppy bags are boosting growth in an environment where consumers will spend less on nonessentials for the long term.

The company said fiscal first-quarter profit fell slightly, but revenue rose, an encouraging sign for a luxury-goods market that has suffered.

In particular, consumers are responding to Coach's bags between $200 to $300, the company said. About 50 percent of Coach's handbags are now priced under $300, compared with 30 percent a year ago, essentially bringing prices back in line with 2007 levels. The Poppy line, with an average price of $240, has been a popular seller, Frankfort said.

"For the foreseeable future, we do not expect the consumer to spend as much as she has done in discretionary areas," CEO Lew Frankfort said in a conference call with investors. He added, "We have adapted our pricing and product strategies to be successful in what will become the 'new normal.' "

Still, though they may be spending less, customers' outlook on spending is getting better, Frankfort said.

"We have seen a significant improvement in our customers' outlook for the economy and intention to purchase over the next year," Frankfort said.

The New York maker of luxury accessories on Tuesday said first-quarter profit fell 3 percent to $140.8 million, or 44 cents per share, compared with last year's third quarter. Analysts polled by Thomson Reuters predicted a smaller profit of 39 cents per share.

Revenue rose 1 percent to $761.4 million, helped by an 8 percent rise in sales at North American stores and growing business in China. That beat analyst predictions of $753.8 million.

Sales in stores open at least one year, considered a key measure of a retailer's performance, fell 1 percent in North America. Indirect sales — about 15 percent of Coach's business — fell 33 percent to $108 million, mainly due to decreased shipments to department stores, which have been among the hardest hit during the recession.

The company said for the holiday season it will reduce print advertising spending and focus more on online ads, fashion blogs and social media sites such as Facebook. It also plans to introduce new products including two new women's accessory groups, Waverly and Gramercy, and new Poppy items under $100. It will also update several lines.

Coach is also opening its first men's standalone store, next to its Bleecker Street store in New York, as it looks to expanding offerings for men.

The company is also focused on expanding in China. Coach's direct-to-consumer business, which includes sales in China, rose 10 percent to $654 million. Sales at Chinese stores open at least a year rose at a double-digit rate, the company said. While China is a small part of Coach's sales, it represents a "significant opportunity," Frankfort said.

Coach plans to open 15 new locations in China, compared with four last year, and it is adding its first Asian distribution center in Shanghai. Meanwhile in North America, the company plans to open 10 new North American stores, down from 20 in each of the past two years.

Stifel Nicolaus & Co. analsyt David Schick said the company's two main drivers over time are expanding globally and protecting its brand image as a status symbol.

"We think the checkup on these two key issues was not only positive but inflected so during the first quarter," he wrote.

Coach shares fell 75 cents, or 2.2 percent, to $33.76 during morning trading, but are still near the higher end of its 52-week trading range of $11.41 to $35.46.

2009-10-20 13:15:33