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Will Coach's $400 Handbag Save The Company?

Will Coach's $400 Handbag Save The Company?

Postby smix » Wed Nov 02, 2016 3:14 am

Will Coach's $400 Handbag Save The Company?
Forbes

URL: http://www.forbes.com/sites/debraborcha ... -pressure/
Category: Business
Published: Tue, 1 Nov 2016 08:17:00 -0400

Description: More women are buying Coach Inc. handbags for $400 according to the company’s chief executive officer Victor Luis. During the company’s earnings conference call, the CEO updated investors on the company’s transition from running too many promotions that cheapened the brand to bringing back the luxury handbag. This includes monogrammed bags and leather reconditioning workshops in some stores. It also means a higher price tag. Luis noted that Coach is seeing continued growth in women buying $400 bags. The $400 bags now account for 50% of sales, up from 30% from last year. The company does plan to expand the product below $400, but mainly for “gifting opportunities.” The average unit retail price for Coach bags is now up to $300. If women are willing to pay more for their Coach bags, then the elevation efforts will have paid off. The returning-to-luxury accessory maker reported that its earnings per diluted share came in at 45 cents, a penny above the average estimate of 44 cents per share by Zacks Investment Research. Net income was $117 million, which also bested last year’s $96 million. Net sales for the company totaled $1.04 billion for an increase of 1%, but on a constant currency basis dropped 1% as the company took a 150 basis point hit for cutting back on promotions and door closures. Analysts had forecast sales of $1.07 billion. Last week, there were market rumors about Coach and Burberry merging. Luis was asked about acquisitions on the earnings call and he said, “Of course we’re going to be very selective in acquisitions that will allow us to build platforms for long-term growth that allows us to leverage our global infrastructure. Most importantly we look for great brands.” He added,” We’re not as committed to any specific nationality. I would keep that in mind.” The stock is rising over 2% in early trading to roughly $36,71. The stock has risen approximately 15% for the past year as it tries to pivot away from heavy promotions that it felt cheapened the brand. Breaking in down by brand, Coach sales totaled $950 million – an increase of 1%, but on a constant currency basis dropped 1%. North American sales fell 3%. Coach has pulled back on its department store offerings and as a result those sales fell 30%. They have closed 120 locations and plan to close the rest by the third quarter of next year. On a positive note, gross profits for the group rose 3%. “We are pleased with our performance in the quarter, highlighted by continued positive comparable store sales in North America and growth internationally,” Luis said. “Despite this deliberate pullback, we achieved growth across key financials, including sales, gross profit and operating income, as well as double-digit earnings growth.” Stuart Weitzman kicked off the heels and switched to flats as sales of $88, barely beat last year’s $87 million. Gross profits of $51 million on a reported basis and $52 million on a non-GAAP basis jumped 3% and 2% respectively. “At Stuart Weitzman, we’re making the key investments in management and creative talent, as well as infrastructure to support long-term, multi-category growth,” said Luis. “Importantly, we continue to expect Stuart Weitzman’s sales to increase at a double-digit pace this fiscal year.” Looking ahead, Coach expects total revenue for fiscal year 2017 to grow in the low single digits.
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