Coach net income jumps on big sales gains

AP News
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Posted: Oct 26, 2010 5:22 PM
Coach net income jumps on big sales gains

Coach Inc. said Tuesday strong demand for its luxury handbags both in North America and overseas helped first-quarter net income rise 34 percent and sounded a positive note about the upcoming holiday season.

The increases topped expectations and eased fears about affluent shoppers' willingness to spend. Shares rose 12 percent to their highest level in more than three years.

"In general consumers are cautious, but they are less pessimistic than they were a year ago and they are spending more in the category than they did a year ago," said CEO Lew Frankfort in a phone interview.

Net income rose to $188.9 million, or 63 cents per share. That compares with $140.8 million, or 44 cents per share, last year. Analysts polled by Thomson Reuters, on average, expected 55 cents per share.

Revenue rose 20 percent to $911.7 million from $761.4 million. Analysts expected $846.8 million.

Coach, based in New York, started selling more handbags under $300 to offset a spending dropoff during the recession.

Coach said they remain dedicated to that strategy but noted that the average unit retail price of handbags sold rose slightly during the quarter.

"We're feeling great about the holiday season given the current sales trends in both our full-price and factory channels," said Michael Tucci, president of North American retail.

For the holiday season, Coach plans to introduce new styles and colors in its existing bag lines and offer more small bags at lower prices. The company also plans to introduce new items throughout the next eight weeks rather than introducing the majority in October as it has in years past, as shoppers continue to shop closer to when they need the items.

Direct-to-consumer sales _ which account for about 88 percent of Coach's revenue and include Coach's own store revenue and online sales _ rose 19 percent to $775 million from $654 million last year.

Indirect sales _ about 12 percent of revenue, primarily from sales to U.S. department stores and international distributors _ rose 27 percent to $136 million. That was mainly because of increased orders internationally, but U.S. department store shipments also rose slightly, the company said.

It was the first time Coach reported growth in shipments to U.S. department stores in 2 1/2 years, a positive sign for department stores, one of hardest-hit retail sectors during the recession.

Revenue in North American Coach stores open at least a year rose 8.5 percent. That is a key indicator of a retailer's performance because it excludes growth at stores that open or close during the year.

The measure rose 3 percent in Japan and in the double digits in China.

Revenue in stores open at least a year has strengthened for three consecutive quarters.

The company raised its estimate for revenue in stores open at least one year for the balance of the fiscal year. It now expects the measure to rise in the mid-single digits, up from previous guidance of a low- to mid-single-digit increase.

Coach expects earnings and revenue to rise in the double digits in the current fiscal year.

Shares rose $5.30 to $49.78. They peaked Tuesday at $50.75, their highest point since September 2007. The stock had traded between $31.69 and $45.64 over the past 52 weeks.