Oct. 23 (Bloomberg) -- Coach Inc., the largest U.S. maker of luxury leather goods, fell the most since 2001 in New York trading after saying profit growth may slow this quarter, its biggest selling period.

Fewer customers are visiting its stores in the Northeast, South and West, retail division President Michael Tucci said today on a conference call. Earnings per share for the three months through December may be 68 cents, the company said, 2 cents below the average estimate of analysts.

The worst U.S. housing market in 16 years and rising fuel and commodities prices have discouraged Americans from spending, and the slowdown began to affect luxury goods. Chief Executive Officer Lew Frankfort said U.S. handbag sales may rise 10 percent after growing more than 20 percent annually since late 2003. Coach's first-quarter net income climbed 23 percent to $154.8 million, the smallest gain in more than five years.

``It is a bit disappointing that the overall consumer slowdown appears to be hitting this high-quality retailer, too,'' said Patricia Edwards, who helps manage $13.4 billion, including Coach shares, at Wentworth, Hauser & Violich in Seattle.

The handbag maker, which has 272 North American stores, fell $4.87, or 12 percent, to $36.60 at 4:07 p.m. in New York Stock Exchange composite trading. It was the biggest decline since September 2001. The stock dropped 15 percent this year.

Wave of Demand

U.S. housing starts plunged to a 14-year low last month, and traders anticipate a Federal Reserve interest rate cut next week. Coach rode a wave of demand for luxury goods in recent years, reporting profit increases of at least 30 percent every quarter since 2001 while its shares soared fivefold.

``The reality is that we have seen an increase of over 20 percent of growth in the category since the second half of 2003,'' the 61-year-old Frankfort said. ``We expected it to slow down. We didn't know when it would occur. It seems to have occurred this fall.''

Growth in the $7 billion U.S. market for handbags, the fastest-growing product in the fashion industry, may have peaked in 2004 when it reached 28 percent, according to data that stock research firm Telsey Advisory Group provided in August. This year industrywide handbag sales may increase 15 percent, the firm said.

U.S. sales of handbags costing at least $100 expanded 22 percent last year, according to research from New York-based Coach, which says it's the U.S. leader with 31 percent market share.

Sales Majority

Handbags, mostly costing $200 to $400, accounted for 64 percent of Coach's sales in the year ended June 30. The 66-year- old company has expanded into jewelry, shoes and fragrances.

First-quarter net income rose to 41 cents a share, from $125.6 million, or 34 cents, a year earlier, the company said today in a statement. Sales increased 28 percent to $676.7 million in the three months through Sept. 29.

Revenue in the second quarter, the company's biggest of the year, may rise to $970 million, compared with the average estimate of $984.7 million among 15 analysts surveyed by Bloomberg. Sales at Coach's North American stores open at least a year may grow in the ``low-single digits'' on a percentage basis, the company said.

A year ago, Coach had a comparable-store sales gain of 13 percent at U.S. stores.

First-quarter sales were helped by the introduction of two new handbag lines this year. A third line, called Bleecker, arrived in stores after the close of the quarter.

To contact the reporter on this story: Cotten Timberlake in New York at ctimberlake@bloomberg.net;

Last Updated: October 23, 2007 16:15 EDT