Coach Rises as Profit Tops Estimates, Shows Revival on Track

  • New products and less reliance on discounts boost results
  • Same-store sales decline slows from previous quarter

Coach Inc. shares rose after profit topped analysts’ estimates, signaling that the company is on its way to regaining its reputation for luxury.

Earnings were 41 cents a share, excluding some items, the New York-based company said in a statement Tuesday. Analysts estimated 40 cents, on average. The results were driven by new styles and fewer discounts, the company said.

Profit tops estimates, helped by new products

Chief Executive Officer Victor Luis is working to win back customers, who have increasingly shifted to competing designers like Kate Spade & Co., by adding new products and updating stores. Those upgrades have allowed the company to reduce its dependence on the profit-sapping discounts it previously relied on to move merchandise. In an effort to catch more shoppers’ attention, Coach also has boosted marketing to highlight its 75th anniversary this year.

“The new product looks better and better, and they’re starting to get the word out,” said Dorothy Lakner, an analyst at Topeka Capital Markets. “They’re doing what they said they were going to do and getting sequential improvement in the American stores.”

Though Coach’s North American comparable-store sales declined 9.5 percent from a year earlier, that was an an improvement from the fourth quarter, when same-store sales fell 19 percent.

Shares of the largest U.S. luxury handbag maker climbed 4.4 percent, or $1.33, to $31.65 at the close in New York. Coach now trades at about 17.6 times earnings, a 3.9 percent discount to the Standard & Poor’s 500 Index. The shares have declined 16 percent this year.

While total sales dropped 0.8 percent to $1.03 billion in the quarter, just missing analysts’ $1.04 billion projection, the decline is the smallest the retailer has reported in more than two years.

“We are excited to see our brand momentum building as we execute on our transformation,” Luis said in the statement. “We enter the key holiday period confident that we will see continued improvement in our North America comparable-store sales, driven by a strong assortment of gifts and new fashion handbags across all channels.”

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