Photographer: Jerome Favre/Bloomberg

Coach Advances After New Designs Help Profit Beat Forecasts

  • Handbag maker battles back against Kate Spade, Michael Kors
  • Company boosts earnings outlook, eyes Hudson Yards sale

Coach Inc., the largest U.S. luxury-handbag maker, surged the most in more than five years after its profit topped estimates and the company raised its full-year earnings outlook.

Profit excluding some items was 68 cents a share in the second quarter, the New York-based company said in a statement Tuesday. Analysts estimated 66 cents, on average. After the results, the shares gained 9.8 percent to $33.33 at the close of trading in New York, the biggest gain since October 2010.

After years of losing ground, Coach is winning back customers with new designs and updated stores. The retailer had suffered from increased competition from designers like Kate Spade & Co. and Michael Kors Holdings Ltd. The improvements have allowed Coach to reduce its dependence on discounts, which hurt profit margins.

“This company is seeing a turnaround very much on plan, led by the full-price channel, which is very impressive given the handbag sector and competitors being very promotional,” said Anna Andreeva, a New York-based analyst at Oppenheimer & Co.

Net income fell 5.9 percent to $188.4 million, excluding items. Sales gained 4 percent to $1.27 billion in the quarter, meeting analysts’ projections.

Coach didn’t specify the amount by which it is raising its outlook for operating income. The company maintained its forecasts for sales and operating margin at the Coach brand.

Hudson Yards

Executive Creative Director Stuart Vevers, who joined Coach in 2013, is influencing the look of products and stores, embracing the industry trends toward cross-body bags and smaller purses, while reducing the prominence of logos.

“The product is much improved,” Andreeva said.

The company also said on a conference call Tuesday that it is exploring the sale of its stake in its Hudson Yards headquarters in New York. Given the soaring Manhattan real estate market, now is “the right time” to explore a transaction and enter into a long-term lease there, Chief Financial Officer Jane Nielsen said on the call. It’s unlikely that any sale or transaction would close until after the fiscal year, she said.

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