January 23, 2013 5:44 pm

Coach weighed down by tough holiday season

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Shares in Coach tumbled nearly 17 per cent in early trading on Wednesday, as a tough holiday season and sluggish recovery from superstorm Sandy weighed heavily on second-quarter sales for North America’s largest handbag maker.

Coach’s , US same-store sales fell for just the third time in 11 years, undermining the company’s leading position in accessible luxury accessories.

While overall sales of handbags and accessories of $1.5bn reflected a like-for-like increase of 4 per cent, US sales – which represent around two thirds of the total Coach market – rose by just 1 per cent in the company’s most critical quarter, with same-store sales down by 2 per cent and falling short of expectations.

Overall net profit for the period which ended on December 29 rose by just 1.5 per cent to $352m, or $1.23 a share, up from $347m, or $1.18 a share, a year earlier.

“We were disappointed by our performance in North America, where the holiday season proved challenging . . . and competition intensified,” said Lew Frankfort, chief executive.

He blamed the slowdown partly on a significant drop-off in foot traffic within both full-price and factory stores, and wholesale division weakness. .

The expansion of several newer rivals, including Michael Kors and Tory Burch, has attracted the attention of Coach observers, as the battle for customer loyalty has intensified in the wake of Kors’ successful initial public offering in December 2011.

“Michael Kors now offers a far more interesting and diverse product portfolio than Coach, both in terms of design and materials,” said Brian Sozzi, chief equities analyst at NBG Productions.

He said changes in Coach’s retail strategy, including more leather in handbags,and “repositioning itself as a lifestyle brand”, suggested “they are starting to feel the heat”.

Coach sought to deflect investor fears by pointing to a rise of 12 per cent in international sales to $411m and doubled menswear growth, but increased sector competition has left analysts bearish.

“The share price reaction this morning shows a dwindling trust in the brand’s unrealistic expectations of its position; market dynamics are shifting far quicker than Coach’s management has internally planned,” Mr Sozzi said.

Coach shares fell to $50.98 in New York.

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