July 30, 2013 4:20 pm

Coach loses ground to sleeker rivals

Shares in Coach fell almost 10 per cent after the latest results for the upmarket US accessories company indicated it was losing ground to its leaner and glossier rivals.

Its fourth quarter net income for 2013 fell by 12 per cent to $221.3m, missing estimates of $251m as a result of weaker sales in North America.


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Excluding items such as restructuring costs, impairment charges and inventory writedowns, earnings per share for the final quarter rose to 89 cents from 86 cents, roughly in line with analysts’ expectations.

But same-store sales slipped by 1.7 per cent in the company’s core market, as increased competition compounded a slump in popularity of its women’s accessories and full-price products. This was the second drop in North American comparable sales in the last three quarters.

“We were not satisfied by our performance . . . it has not been business as usual,” said outgoing chief executive Lew Frankfort, adding that the company would take significant steps to reposition itself to improve domestic growth.

The company announced plans to streamline its North American store base, closing 16 full-price stores while opening 15 factory discount stores – a clear step towards greater dependence on factory outlet sales for the region.

Total net sales of $1.22bn for the quarter to June 29 represented a like-for-like increase of 6 per cent, missing the forecast $1.24bn.

For the full year, net sales were $5.08bn – up by 7 per cent when compared with $4.76bn in 2012.

Despite its modest overall sales growth, Coach continues to trail fellow US accessible luxury brands like Ralph Lauren and Michael Kors, which have seen a rise in market capitalisation by more than 20 per cent since the start of 2013.

While Coach’s international sales rose 7 per cent to $386m for the fourth quarter – and 10 per cent to $1.54bn for the full year – this compares with Michael Kors boast of a near-doubling in sales revenue outside North America in its fourth-quarter earnings call with analysts recently.

“Coach has been up and down recently, however it is evident that rival brands are all innovating and growing at a much faster rate,” said Rahul Sharma, managing director at Neev Capital.

“Given at one point it had the whole playing field to itself, we’re witnessing serious brand fatigue – not helped by the unsettling upheaval amongst its management team.”

In April, Mr Frankfort announced his intention to step down as chief executive at the end of the year and appointed Victor Luis, the company’s president, to replace him.

Other contenders for the role, Mike Tucci, North American president, and Jerry Stritzke, chief operating officer, have subsequently announced their departures, while Reed Krakoff, Coach’s creative director, is also leaving in order to focus on his eponymous fashion brand.

Coach has agreed to sell the brand to a group led by Mr Krakoff in a deal expected to conclude at the end of the next fiscal quarter. Mr Krakoff will then exit the company, to be replaced by Stuart Vevers who was poached from the LVMH-owned leather accessories brand Loewe.

Coach shares were down 8.5 cent to $52.95 by midday in New York trading.

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