Coach’s Victor Luis to Succeed Frankfort as CEO in 201

Coach Inc., the largest U.S. luxury-handbag maker, named Victor Luis, head of the company’s international business, to succeed Chief Executive Officer Lew Frankfort next year.

Frankfort, who was named CEO in 1995, will become executive chairman as of January, the New York-based company said today in a statement. Coach named Luis president and chief commercial officer in the interim and said he’ll also join the board.

Coach’s North American same-store sales have declined amid economic pressure on consumers and growing competition from Michael Kors Holdings Ltd., Fifth & Pacific Cos.’ Kate Spade brand and Tory Burch LLC. Coach is working to transform into a so-called lifestyle brand by building on its footwear, jewelry and clothing lines to help expand its business.

“The succession comes at a time when the company is undergoing significant strategic change,” Liz Dunn, an analyst with Macquarie Group, wrote in a note to clients today. It “is the right move to support Coach’s geographic growth opportunities and expansion into new lifestyle categories.”

Dunn, based in New York, rates the shares outperform, the equivalent of buy.

The shares fell 1.2 percent to $48.20 at the close in New York. Coach has declined 36 percent in the past 12 months, the fourth-worst performance in the 82-company Standard & Poor’s 500 Consumer Discretionary Sector Index.

Market Share

Frankfort, 66, joined Coach in 1979 as vice president of new business development. In 2000, he led Coach’s transition to a publicly traded company and built it into the dominant U.S. handbag company, claiming a 30 percent share of the market. The company’s annual sales were $953.2 million in 2003 and will be $5.1 billion in this financial year, according to the average of analyst estimates compiled by Bloomberg.

Frankfort is “highly regarded” in the industry, Dunn wrote. While “there are sure to be some who view this transition with disappointment,” Frankfort will still be actively engaged in the business, she said.

Frankfort presided over a constant pace of handbag collection introductions, with names such as Poppy, Madison and Kristen, culminating in a Legacy line introduced last year that harked back to the company’s original streamlined and chunky leather look.

China Expansion

The CEO oversaw expansion in China, where the company had built up 117 stores as of Dec. 29, and in recent years he has targeted male customers with stores of their own and well as dual-gender locations. He supported Reed Krakoff, the company’s executive creative director, in developing the namesake Reed Krakoff luxury women’s apparel and accessories line.

Luis led Coach’s businesses in Japan and China before becoming president of international retail in 2010 and then head of all of its operations outside North America last February. Before joining Coach, Luis ran the North American operations of French luxury brand Baccarat.

“It is telling that the company, despite recent challenges, still picked the successor that most signaled its emphasis on topline growth,” Dunn wrote. Luis has presided over the company’s most significant growth drivers over the past seven years, she said.

Coach reported fiscal second-quarter profit that trailed analysts’ estimates last month as sales at stores open at least a year in North America dropped 2 percent.

Net income rose 1.5 percent to $352.8 million, or $1.23 a share, in the three months ended Dec. 29. Analysts projected $1.28, the average of estimates compiled by Bloomberg. Total revenue in the quarter increased 3.8 percent to $1.5 billion, trailing the $1.6 billion average estimate.

Michael Kors this week boosted its annual profit and revenue forecasts in anticipation of a jump in same-store sales.