Oct 22, 2013
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Handbag maker Coach warns of further fall in North America sales

Oct 22, 2013

Coach, known for its Poppy handbags, posted a steep fall in sales in North America, its largest market, and forecast further declines through the rest of its financial year as it loses market share to rivals such as Michael Kors.

Karlie Kloss in the current Coach campaign

Coach shares fell as much as 9 percent after it reported a 6.8 percent fall in North America same-store sales in the three months to September 28.

The company warned North American same-store sales would be down by "high single digits" for the rest of the financial year which ends in June 2014, Chief Financial Officer Jane Nielsen said on a post-earnings conference call.

Coach has been facing stiff competition in the handbags business from Michael Kors, Fifth & Pacific Cos Inc's kate spade and Tory Burch whose trendy offerings resonate more with younger customers.

"I think where Coach has really struggled is the 20-35 crowd. They've left Coach and gone to Michael Kors and Kate Spade," said Edward Jones analyst Brian Yarbrough.

Coach retaliated by selling more clothing and footwear, which have lower margins than the handbag business.

However, Yarbrough said the strategy would not be enough to offset the declines in the handbag business.

Coach's total sales in 2014 are expected to be flat or rise in the low single digits on a constant currency basis, CFO Nielsen said on the conference call.

Total first-quarter sales slipped 1 percent to $1.15 billion, falling shy of analysts' estimates. Sales in North America fell 1 percent and accounted for about 68 percent of total sales.

Net income slipped 1.6 percent to $217.9 million, or 77 cents per share, missing analysts' estimates.

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