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Published
Apr 26, 2011
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Coach profit rises; but says Japan will hurt Q4

By
Reuters
Published
Apr 26, 2011

Apr 26 - Coach Inc warned investors that the disasters in Japan would continue to hurt results in the current quarter, casting a shadow on the upscale handbag maker's better-than-expected sales and earnings report.

Coach Inc
Poppy collection by Coach

Coach on Tuesday said sales during the third quarter rose 14 percent to $950.7 million, fueled by a 10.3 percent increase at its North American stores open at least a year and a double-digit percentage gain in China, now its main focus in Asia.

Still, the company, known for its signature handbags, said the March 11 earthquake in Japan and the tsunami and nuclear disaster that followed, was taking a toll.

Coach last year took in about 18 percent of its sales in Japan, and said it expects to lose $20 million in sales, or 2 percent, and between 2 cents and 3 cents per share in profit in the current quarter, which ends July 2.

That would represent nearly 5 percent of its fourth-quarter profit of 64 cents, based on analyst forecasts.

But Coach Chief Executive Lew Frankfort told Reuters that the worst was probably over.

"We don't see any long-term damage. In fact our business has rebounded in our full-price locations," he said.

Coach operates 174 stores in Japan, seven of which are still closed.

Coach said it lost $20 million in sales and 2.5 cents of earnings per share during the three-month period that ended on April 2 because of the Japan disasters.

Coach has positioned itself in the "affordable luxury" segment in the past two years as shoppers shifted from more expensive items such as Hermes' handbags.

In the past few years, it has lowered average prices on its handbags about 10 percent by introducing new, more affordable lines and expanding its outlets.

Coach shares were down 58 cents, or 1 percent, at $56.50 in premarket trading.

FOCUS ON MEN, CHINA


To mitigate its exposure to Japan, which Frankfort said was a mature market that was contracting even before the disasters, Coach has set its sights on China and expanding its assortments for men.

Men's products now only make up about 3 percent of Coach sales, but Frankfort said the "fragmented" market for those items presented Coach with a substantial opportunity.

Sales in China make up less than 5 percent company-wide, but are expected to rise to 10 percent by 2014. Coach is set to open another 10 stores there in the current quarter, bringing the total to 55.

Coach reported net income of $186 million, or 62 cents per share, for the third quarter that ended April 2, up 18 percent from $157.6 million, or 50 cents per share, a year earlier.

That beat Wall Street analysts' average forecast of 60 cents per share on sales of $947.2 million, according to Thomson Reuters I/B/E/S.

Coach's gross margin, which measures the profitability of the goods it sells, held steady at 72.8 percent.

Coach raised its dividend 50 percent to an annualized 90 cents per share.

(Reporting by Phil Wahba; Editing by Lisa Von Ahn and Maureen Bavdek)

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