Coach 3Q boosted by China, N. American demand

AP News
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Posted: Apr 26, 2011 5:10 PM
Coach 3Q boosted by China, N. American demand

Luxury handbag maker Coach's third-quarter net income rose 18 percent as higher demand in North America and China helped offset an estimated $20 million hit to its revenue from Japan's tsunami and earthquake.

The results Coach reported Tuesday offer further evidence that affluent shoppers are increasing their spending faster than other consumers.

Coach also said it is increasing its cash dividend by 50 percent to 90 cents per share annually.

Net income rose to $186 million, or 62 cents per share, for the three months that ended April 2. That compares with $157.6 million, or 50 cents per share, a year earlier. Analysts expected earnings of 60 cents per share, according to FactSet.

Revenue rose nearly 15 percent to $950.7 million. Analysts expected $946.5 million.

CEO Lew Frankfort said the company was "deeply saddened" by the earthquake and tsunami in Japan, where Coach makes about a fifth of its sales.

"The immediate impact to our Japanese business was significant, with improvement more recently," he said.

Coach Inc., which is based in New York, estimated the tsunami and earthquake cuts its third-quarter earnings by 2.5 cents per share and would have a similar effect in the fourth quarter, a cut of 2 cents to 3 cents per share.

However, that was offset in the third quarter by strong demand in North America, where the brand is continuing a resurgence following a drop in demand during the recession. Revenue in North American stores open at least a year rose 10.3 percent.

That comparison is a key indicator of a retailer's long-term health because it excludes stores that opened or closed during the year.

In China, where Coach's sales are growing fastest, revenue in stores open at least one year rose by a double-digit percentage, the company said. China revenue currently totals about $185 million. The company is looking forward to its sales in China surpassing its $700 million in revenue from Japan.

Coach has 55 stores in China and it is seeking to add 11 more by the end of the year and 30 each year after that. In contrast, Coach operates 174 stores in Japan. Seven stores in the hard-hit Sendai area were still closed at the quarter's end but three of those reopened in April.

Coach operates 344 full-price and 134 factory stores in North America.

Revenue from Coach stores and online orders rose 15 percent to $832 million. Revenue from sales to department stores and other retail outlets rose 14 percent to $119 million.

Coach started selling more handbags under $300 to compensate for consumers cutting their spending during the recession, but the average retail price of its handbags has begun to tick back up.

Shares rose 17 cents to close at $57.25. They fell 23 cents after hours.