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Coach Profit Falls 1.6% as North American Sales Sink

Oct. 22 (Bloomberg) -- Coach Inc., the largest U.S. luxury handbag maker, said fiscal first-quarter profit fell 1.6 percent as stiffer competition curtailed handbag sales in North America.

Net income in the three months ended Sept. 28 dropped to $217.9 million, or 77 cents a share, from $221.4 million, or 77 cents, a year earlier, New York-based Coach said today in a statement. The average of 30 analysts’ estimates compiled by Bloomberg was 76 cents.

Coach Chief Executive Officer Lew Frankfort has been trying to convert the company into a lifestyle brand that sells everything from bags to shoes amid rising competition for wary consumers. Coach’s sales at stores open at least a year in North America sank 6.8 percent in the quarter as Michael Kors Holdings Ltd., Fifth & Pacific Cos.’ Kate Spade and Tory Burch LLC increased distribution of their own products.

“Investors have been concerned that the brand has still not seen signs of stabilization in North America,” Erinn Murphy, a Minneapolis-based analyst for Piper Jaffray Cos, said today in a telephone interview. “What Coach is doing is the right approach. It’s just going to take some time.”

Building a lifestyle brand will take a large investment in marketing so results will continue to suffer, said Murphy, who rates the shares neutral, the equivalent of a hold.

Coach fell 7.7 percent to $50 at 10:39 a.m. in New York and earlier slid as much as 8.6 percent for the biggest intraday decline since July 30. The shares dropped 2.4 percent this year through yesterday, compared with a 22 percent gain for the Standard & Poor’s 500 Index.

The North American same-store sales decline was worse than the analysts’ average estimate for a 2.9 percent drop.

Revenue fell 0.9 percent to $1.15 billion, trailing analysts’ $1.19 billion average estimate.

(Coach executives held a conference call at 8:30 a.m. New York time to discuss results. To listen, go to LIVE <GO>.)

To contact the reporters on this story: Cotten Timberlake in Washington at ctimberlake@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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