Aug. 21 (Bloomberg) -- Coach Inc.'s shares, like its handbags, are losing their cachet.

Some investors are betting that outsized gains for Coach stock, which has surged 22 times since first being sold to the public in 2000, are a thing of the past.

While the maker of Soho and Ergo purses has dominated the market for $200 to $400 handbags for the past decade, Coach is winning fewer customers amid a market slowdown. Competitors including Liz Claiborne Inc. and Polo Ralph Lauren Corp. are spending more to market purses including Juicy Couture velour hobo bags and alligator satchels.

Growth in the $7 billion U.S. market for handbags may fall by as much as half next year, Coach Chief Executive Officer Lew Frankfort said July 31. Profit at Coach, which has advanced at least 34 percent in each of the past eight years, will rise 17 percent in 2009, according to a survey of 13 analysts. The company's past success is weighing on its ability to attract new customers at the same pace, investors said.

``The best days of its stock performance may be behind it,'' said David Abella, a fund manager at Rochdale Investment Management in New York. ``My expectation is that you wouldn't get those types of gains going forward. It's a richly priced stock.'' Rochdale reduced its Coach holding by about a quarter in the three months ended June 30. The firm has $2.5 billion in assets.

Almost half of Coach customers had no plans to buy a Coach handbag this year, up from 35 percent a year ago, according to a Goldman Sachs Group Inc. survey released in June. Goldman surveyed 1,550 consumers.

`No Hurry'

Profit growth will slow, and ``changes in earnings momentum have historically been significant drivers of luxury stock share price performance,'' said Erwan Rambourg, an analyst with HSBC Bank Plc in Paris, in an Aug. 9 report. HSBC feels ``no hurry to be more positive on the stock.'' The analyst is ``neutral'' on the shares.

Even after a 12 percent decline in the last six months, Coach shares are still more expensive than their peers. The stock trades at 25 times earnings. Polo trades at 20 and Liz Claiborne at 14. Coach shares are on track for their slowest annual gain since the initial public offering.

Coach shares fell 74 cents, or 1.7 percent, to $43.79 at 4:01 p.m. in New York Stock Exchange composite trading today.

``We think there is no hurry to own the stock right now,'' J.P. Morgan Securities Inc. analyst Brian Tunick said in an Aug. 6 note. He has a ``neutral'' rating on the shares.

Stock Options

Put options on the shares outnumber call options because ``investors are using options to bet on a decline in the shares, according to Andrew Wilkinson, a senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. ``Institutions seem to be piling up on the bear side.''

Coach jump-started the U.S. market for accessible luxury handbags in 2000 as the market for high-priced goods took off, said Patricia Edwards, who helps manage $11.9 billion, including Coach shares, at Wentworth, Hauser & Violich in Seattle.

``Coach stood for quality, but the price wasn't so outrageous that people got nosebleeds looking at the goods,'' said Edwards, a self-described ``handbag tramp'' who owns 15 purses. ``They started redefining what constituted a classic handbag.''

Sales at Coach-owned stores open at least a year slowed for the past two quarters to 11.6 percent from 20.8 percent. Mid- market customers are becoming more reticent with spending as anxiety grows about the financial climate amid subprime mortgage woes. And some people just don't like the bags.

`Bored With Coach'

``I got bored with Coach -- the big 'C,' so recognizable -- and everybody has it,'' said Marie Hasegawa, a 31-year-old executive assistant, while shopping at a Kate Spade store in New York. ``Most of their bags are just out of date.''

Coach has widened its price range by selling products from $28 leather charms to dangle on bags to $798 Legacy bags. It is launching three handbag lines this year, including the slouchy Carly bag with harness detailing, which debuted in January.

Coach is selling more of its bags priced above $400. They now account for 18 percent of handbag sales in its full-priced U.S. stores, while the average price has risen to $290 in the latest year, from $200 four years earlier.

Coach's new customer numbers ``are at the highest level in several years,'' said Andrea Resnick, a spokeswoman for Coach. She said the company doesn't disclose specific statistics.

For Coach's Frankfort, the handbag market is slowing from a ``torrid pace'' to a ``more sustainable'' rate and he says he welcomes the competition. The company is predicting U.S. industry growth of at least 10 percent, Resnick said.

`Never Been Better'

Coach's own sales will grow 20 percent in the year that ends in mid-2008 and have similar growth in the coming years, Frankfort said in an interview today, adding that the company's outlook ``has never been better.''

Competition ``generates more interest in the category, and Coach is extremely well-positioned to take advantage of the increased interest,'' Frankfort, 61, said in the July 31 interview. ``Most of the competition has not been able to withstand the test of time. They get hot and they get cold.''

Not all investors or analysts are negative about Coach. Seventeen analysts recommend buying the shares, and eight say ``hold'' and some say that its dominant position will help buffer the company in any market slowdown.

``I don't see a lot of signs of real concern out there,'' said Jeffrey Krumpelman, a portfolio manager who helps manage $21 billion in assets at Fifth Third Asset Management in Cincinnati. It holds Coach shares.

Polo's Push

Polo, based in New York, plans ``an integrated push'' to expand in the handbag market next year, President Roger Farah said in May.

Polo will add more luxury bags like the $14,000 alligator ``Ricky'' satchel, which was introduced in 2005 and was named after designer Ralph Lauren's wife. Liz Claiborne acquired Kate Spade from Neiman Marcus Group Inc. in November and grouped it with Juicy Couture and Lucky Brand; now it plans to expand their accessories.

The extra competition will mean fewer spoils for the companies, industry experts said.

``Everybody wants to be in the handbag business,'' Irenka Jakubiak, editorial director of Accessories magazine in New York, said July 16. ``It gives the consumer lots of options, but how many handbags can you buy?''

Shopping in downtown Manhattan in July, shopper Vera Colbert said she was trying to kick her habit.

She's looking for a unique purse that isn't ``on everyone,'' as she tries to ``wean myself out of the bag market.''

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

Last Updated: August 21, 2007 18:26 EDT