Coach sales drop as handbag market heats up

Coach Inc.'s move beyond purses can't come quickly enough.

The largest U.S. luxury handbag maker, which has been working to refashion itself into a lifestyle brand selling everything from high-heeled shoes to trench coats, said Tuesday that North American sales plunged 21 percent in the quarter ended March 29. That's steeper than the 15 percent slide analysts projected and worse than the 14 percent drop during the holiday quarter.

Coach has stores at Mohegan Sun and Clinton Crossing.

U.S. retailers of all stripes have been hampered by repeated winter storms and weak traffic, while Coach also faces stepped-up handbag competition from the likes of Michael Kors Holdings Ltd. Coach's total third-quarter revenue fell 7.4 percent to $1.1 billion, trailing analysts' $1.13 billion estimate. Chief Executive Officer Victor Luis attributed the drop to the weather, the shift of Easter from March to April, and a reduction in online promotions.

"Our business in North America remained challenging in the period," Luis said today in a statement. "We experienced sharply lower traffic levels in our stores while our Internet results were impacted by our strategic decisions."

Luis is turning Coach, known mostly for its handbags, into a brand that sells shoes, outerwear and other accessories. Since assuming his position in January, he has revamped Coach's design team, which is refurbishing the stores and will introduce new products this fall.

Coach faces "intensifying" competition from Kors and Kate Spade & Co., Michael Binetti, an analyst with UBS AG, wrote. He has the equivalent of a hold rating on the shares.

Coach's third-quarter net income dropped 20 percent to $190.7 million, or 68 cents a share, from $238.9 million, or 84 cents, a year earlier. The average of 33 analysts' estimates compiled by Bloomberg was 61 cents.


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