Coach profit surges in Q1

Luxury handbag and accessories brand Coach posted a 22% increase in profit for the first quarter, a result that one analyst said show the company’s turnaround is delivering.



Profit totaled $117.4 million in the quarter, or 42 cents per diluted share. Adjusted net income for the quarter totaled $126 million, or 45 cents per diluted share, slightly ahead of forecasts.



Revenue totaled $1.04 billion in the period, which fell short of Street forecasts. Total North American Coach brand sales decreased 3% to $545 million versus $561 million last year. As planned, sales at North American department stores declined approximately 30% on both a POS and net sales basis.



The company said sales for the first fiscal quarter were pressured by about 150 basis points by the company’s decision to pull back on sales and promotions through its North American department store channel. In August, Coach said it planned to close 25% its weaker locations within department stores in the next year and have fewer promotions and sales as part of its turnaround effort.



“We remained focused on elevating the perception of the Coach brand through compelling product, differentiated store environments and emotional marketing,” said Victor Luis, CEO, Coach. “At the same time, we implemented the strategic actions necessary to reposition the brand and streamline our distribution in the promotional North American department store channel. Despite this deliberate pullback, we achieved growth across key financials, including sales, gross profit and operating income, as well as double-digit earnings growth.”



Neil Saunders, CEO of retail consulting firm Conlumino, said that Coach’s first quarter results show its turnaround is delivering, and that the company remains on the right path to rebuilding its brand image and profitability.



“Comparable sales within North America rose by 2%, the same pace of increase posted last quarter,” he said. Notably all of this was driven by bricks-and-mortar stores where, on a comparable basis, sales grew by 4%. In our view, these stores are benefitting from a transfer of trade from some of the channels Coach is pulling out of.”



Saunders added that the customers now shopping Coach stores are those who are much more willing to pay full price or near full price for items, rather than those who buy into the brand only when it is on discount.



“This means the bottom line benefits from both the higher productivity of Coach stores and higher average margins. Indeed, this is one of the reasons why net income is up 22%,” he said.