April 29, 2014 4:54 pm

Coach earnings plunge as US sales tumble

Coach shares tumbled by nearly 10 per cent after the US accessories group reported worse than expected quarterly earnings and a sharp dip in North American sales.

Sales in stores open at least a year fell 21 per cent in the group’s core home market, missing Wall Street estimates of a 15 per cent decline. It blamed a later than usual Easter and wet weather for its poor performance.

Coach has suffered heavily from increased competition from younger, fresher rivals in recent years, such as Kate Spade and Michael Kors. It is in the early stages of attempting to reposition itself as a more upmarket lifestyle label, but the revamp is adding to costs and has yet to win over customers.

Net income for the third quarter ending March 29 dropped 20 per cent to $191m, or 68 cents a share, down from $239m, or 84 cents, a year earlier. Revenue fell 7 per cent to $1.1bn. Jane Hamilton Nielsen, chief financial officer, warned the company expected sales to fall a further 10 per cent in the quarter ending in June.

“These results are absolutely hideous – Coach is being murdered at home by the new kids on the block,” said Rahul Sharma, an analyst at Neev Capital, adding that North American sales had fallen for the fourth quarter in a row. “The model continues to be in big trouble and this was a big miss despite washed out expectations.”

Victor Luis, chief executive, said that the group had recorded sharply lower traffic levels in stores, while internet results were hit by a decision to cut discounts and reduce invitations to flash sales at its factory site.

He added that the strongest signs of growth in the period came from sales of handbags priced more than $600.

Stuart Vevers, creative director, was poached last year from Loewe in a bid to revamp Coach’s stale product mix and store design. His first collections will hit stores in September.

The group benefited from strong demand at its footwear division and in emerging markets. International sales rose 14 per cent to $441m excluding currency swings. China sales jumped 25 per cent.

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