Coach fiscal 1st-quarter profit rises 14 pct

AP News
Posted: Oct 25, 2011 6:12 PM
Coach fiscal 1st-quarter profit rises 14 pct

Coach Inc. said Tuesday its fiscal first quarter profit rose 14 percent as shoppers spent more on handbags in North America and its men's offerings and sales overseas continued to grow.

Results beat expectations and the company sounded an upbeat note about the upcoming holiday season.

Coach has been an outperformer in recent quarters as luxury consumers continue to spend money in North America despite the uncertain economy, and current results are a sign that the trend is continuing. Coach executives said in a conference call that consumers have been shopping consistently, despite what one analyst called the "whiplash" of the market recently.

"Traffic volatility is not something we're seeing at all, we're seeing a very consistent pattern," said Michael Tucci, president of Coach's retail division in North America.

For the holiday season _ November and December _ Coach plans on introducing new items in its higher priced Madison line, gifts such as iPad covers and wristlet bags and more items under $100.

CEO Lew Frankfort said Coach is "well positioned for another excellent holiday season," due to the momentum of its business and breadth of offerings.

Coach started selling more bags under $300 during the recession, but it the average retail price of its handbags is inching back up. About 22 percent of handbags sold were over $400 during the quarter, compared with 16 percent last year.

The New York company reported net income rose to $215 million, or 73 cents per share, for the three months ended Oct. 1, up from $188.9 million, or 63 cents per share, a year ago.

That beat analysts' expectations of 70 cents per share, according to a poll by FactSet.

Revenue rose 15 percent to $1.05 billion from $912 million a year ago. Analysts expected $1.02 billion. Revenue in stores open at least one year rose 9.2 percent in North America. The measure is important since it excludes results from stores that open or close during the year.

Gross margin _ the percentage of each dollar in revenue the company keeps as profit _ declined to 72.8 percent, from 74.2 percent last year, due to higher sourcing costs. Many companies are facing gross margin declines as commodity costs rise. Coach said it expects its gross margin rate will remain about 72 percent to 73 percent for the remainder of the fiscal year.

In North America, the company opened two retail stores, including one men's store and closed two locations. At quarter's end, the company operated 345 retail stores and 152 factory stores in North America.

Coach said its online sales are growing in the double digits. Its mobile commerce site is helping drive traffic to its web site, with about 15 percent of visits coming from a mobile device.

Coach has been focusing on increasing its men's offerings and expanding abroad. Within the next five years it expects about half of its sales will come from overseas, compared to 30 percent today.

In China, Coach's fastest growing segment, revenue in stores open at least one year rose in the double-digit percentage range. The company opened four new locations in China in the quarter and one in Macau, bringing the total to 71.

Coach now expects revenue of $300 million from the region for the year, the high end of the guidance the company gave in August.

Frankfort said its men's business has had "excellent response" to its men's offerings both in dedicated stores and dual-gender stores.

"We remain confident in our ability to deliver double-digit sales and earnings growth during our planning horizon given the strength of the Coach brand and our increasing global expansion," Frankfort said.

Shares fell $1.10 to close at $61.56 Tuesday as the broader market fell.