Coach Inc. said Tuesday that its fourth-quarter net income rose 4 percent, helped by people buying more expensive handbags in North America.
Results beat expectations, but investors were expecting even better results, and shares dropped more than 6 percent.
Coach's results show that the luxury sector continues to recover more quickly than other parts of the retail industry, which is wrestling with consumer fears about unemployment and stagnant home prices.
"This quarter's performance demonstrated a continuation of the momentum we have been experiencing throughout fiscal 2011," said CEO Lew Frankfort in a call with analysts.
During the quarter, the New York luxury handbag maker 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. About 17 percent of its handbag sales were of bags over $400, compared with 11 percent of sales in the prior year.
Net income rose to $202.5 million, or 68 cents per share, during the quarter ended July 2. That compares with net income of $195.5 million, or 64 cents per share, last year. Analysts had expected net income of 65 cents per share, according to FactSet.
Revenue rose 9 percent to $1.03 billion from $950.5 million last year. That's slightly higher than the 1.01 billion analysts had been expecting.
Revenue in stores open at least one year _ considered a key measure of a retailer's financial healthy _ rose 10.1 percent in North America.
For the year, net income rose 20 percent to $880.8 million, or $2.92 per share, from $734.9 million, or $2.33 per share. Revenue rose 15 percent to $4.16 billion from $3.61 billion a year ago.
Shares of Coach Inc. slid $4.26, or 6.5 percent, to $61.03 as broader markets tumbled.
Wall Street Strategies analyst Brian Sozzi said the stock may be falling because Wall Street has come to expect outperformance by the company.
"Unfortunately a level of excellence was not inherent in the report if we put the pieces to the puzzle together correctly," he said, noting that North American revenue in stores open at least one year was slightly weaker than the prior quarter. "Numbers were good, but good in this trading environment and with a stock priced for earnings sizzle will likely be sold by the market."
Looking forward, CFO Mike Devine, who is retiring this month and will be replaced by former PepsiCo executive Jane Nielsen, said the company expects sales and earnings in the next fiscal year to grow at a double digit percentage rate and expects North American revenue in stores open at least one year to rise in the mid-single digit percentage range.
Coach also laid out expansion plans.
The company plans to broaden its men's business _ which in the late 1990s accounted for 20 to 25 percent of its sales. It doubled men's revenue in 2010 to more than $200 million. The company now expects sales of men's products to account grow from 4 percent of its sales to 10 percent eventually.
In North America, Coach plans to open 40 stores in North America during the year, including 15 full-price stores, about half men's stores, and 25 factory stores, including 15 men's stores.
In China, Coach's fastest growing segment, revenue in stores open at least one year rose in the double-digit percentage range. The company plans to open 30 stores in China and push a marketing campaign their centered on its 70th anniversary, with an "international brand ambassador," Gwyneth Paltrow.