Coach North American Sales Fall Amid Competition, Storms

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 today that sales at North American stores open at least a year plunged 21 percent in the quarter ended March 29. That’s steeper than the 15 percent slide analysts projected and the 14 percent drop during the holiday quarter. To make matters worse, Coach said sales by that measure may slide just as much this quarter. The stock slumped the most in more than a year.

U.S. retailers of all stripes have been hampered by repeated winter storms and weak store traffic, while Coach also faces stepped-up competition in the handbag segment 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 added that the shift of Easter from March to April and a plan to reduce online promotions contributed to the drop, too.

“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.”

Chief Financial Officer Jane Nielsen said today on a conference call with analysts that North American same-store sales will fall as much in the quarter through June as they did in the third quarter. She also said the company stopped buying back shares after spending $525 million so far this year, less than the $700 million it planned on spending in that timeframe, and will retain that cash to invest in the business.

Shares Fall

The shares tumbled 9.3 percent to $45.71 at the close in New York, the biggest one-day drop since Jan. 23, 2013. Coach has sunk 19 percent this year, compared with a 1.6 percent gain for the Standard & Poor’s 500 Index.

Luis is turning New York-based Coach, mostly known for its pricey handbags, into a brand that sells a full array of 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. Sales may “moderate further” in the year starting in July, Luis said on the conference call, without providing more detail.

“We see this as being a multiyear process,” Corinna Freedman, an analyst with Wedbush Securities in New York, said in a phone interview today. The impact of the new management team’s merchandise initiatives won’t be felt until the new fall goods flow into the stores in a few months, said Freedman, who rates the shares hold.

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.

Before it's here, it's on the Bloomberg Terminal.