(Adds Breakingviews link, closing share price)
By Jessica Kuruthukulangara
May 2 Coach Inc reported a
higher-than-expected quarterly profit, as the handbag maker cut
back on discounting in the United States and sold more expensive
bags, sending its shares up 11.4 percent.
The New York City-based company also reaffirmed its
full-year profit and revenue forecast.
After years of lackluster sales, Coach, like other
affordable luxury brands including Michael Kors Holdings Inc
, is trying to turnaround its business.
The company is limiting promotions and pulling its handbags
off department store shelves in a bid to regain its
Coach said on Tuesday comparable sales for its handbag
business increased in the third-quarter, driven by demand for
its more expensive 'Rogue' and 'Swagger' handbags. The company
does not break up sales for the business.
Sales of handbags priced above $400 made up over 55 percent
of handbag sales in North America in the third quarter, up from
about 40 percent last year, Chief Executive Victor Luis said on
a post-earnings call.
Luis touted Coach brand ambassador Selena Gomez's influence
as a factor in making the brand more relevant. The "Same Old
Love" singer's first 2 Instagram posts for the company generated
5 million and 6 million likes, respectively.
Gomez, whom Coach signed on as ambassador in December, will
collaborate with the company's Executive Creative Director
Stuart Vevers to create a new style of handbags, slated to hit
stores globally later this fall.
"There are plenty of indications that the (turnaround)
strategy is working," Neil Saunders, managing director of
GlobalData Retail said.
Saunders pointed to Coach's market share gains in higher
price point bags and accessories, and its strong performance at
company-owned stores, where comparable sales rose 3 percent this
Still, Coach's total net sales in the third quarter ended
April 1 fell 3.7 percent to $995.2 million, partly due to its
decision to cut discounts and shut stores.
Profit, however, rose nearly 9 percent to $122.2 million.
Excluding items, Coach earned 46 cents per share in the quarter,
beating analysts' estimates by 2 cents, according to Thomson
Coach said it still expected full-year revenue to increase
in low-single digits and profit to grow in double-digits. It had
reported revenue of $4.49 billion and adjusted profit of $1.98
per share last year.
Coach shares posted their biggest intraday percentage gain
in more than a year, closing $4.41 higher at $43.15.
(Reporting by Jessica Kuruthukulangara and Siddharth Cavale in
Bengaluru; Editing by Supriya Kurane and Sayantani Ghosh)