GO
Loading...

C-Suite shake-up hits Coach after sales drop

Reuters with CNBC.com
Wednesday, 31 Jul 2013 | 2:03 PM ET
Scott Eelis | Bloomberg | Getty Images

Coach on Tuesday again reported soft sales at its North American stores as it continued to face tough competition for handbag shoppers, and the leather goods maker announced the departures of two more executives.

Shares of New York-based Coach, which is known for its Poppy handbags fell. (Click here to track the company's shares.)

Overall revenue rose 5.8 percent to $1.22 billion in the fourth quarter ended June 29, helped by gains it its men's merchandise and in China.

But sales at its own stores open at least a year fell 1.7 percent in North America, where Coach is competing with fast-growing brands like Michael Kors and Fifth & Pacific's Kate Spade.

Coach's decline stemmed from weak sales in its bread-and-butter business—women's handbags. This was the second drop in North American comparable sales in the last three quarters.

"They have lost some market share, no question about it, especially among young, fashion-conscious shoppers," Edward Jones analyst Brian Yarbrough told Reuters.

As Coach attempts to transition into a global lifestyle brand, Ike Boruchow, an analyst at Sterne Agee, said Coach's market share remains the biggest concern for investors as smaller competitors attempt to grab customers from the retailer. This transformation could be a 12 to 24-month process, he added.

"So that's really where the concerns are especially when you look at Coach's industry-leading margins," he said. "People are wondering, as competition heats up, what happens to those margins and if they have to come down over time."

Mike Tucci, the head of Coach's North America business is stepping down, as is Jerry Stritzke, its operations chief. Analysts had expected this, given that the two had been believed to be candidates to succeed longtime CEO Lew Frankfurt.

Victor Luis, who oversaw Coach's international expansion, takes the reins from Frankfurt in January.

Coach Q4 net earnings falls 12%
Ike Boruchow, an analyst with Sterne Agee, breaks down Coach's fourth-quarter numbers and weighs in on how the luxury retailer is handling the competition.

Still, those departures, along with the previously announced exit of Reed Krakoff, the creative director behind Coach's torrid growth of recent years, come as the company is trying to reignite sales in North America by becoming a "head-to-toe" lifestyle brand offering more footwear and clothing.

"We agree there's a lot going on," Frankfurt said in an interview. But he disputed the notion all these changes were disruptive. "We have a seasoned group of Coach veterans taking on these roles."

(Read more: In bet on luxury, Saks draws $2.4 billion bid)

Despite the weak North American results, there were some positive signs. Gross profit margin rose slightly, suggesting Coach has not had to discount much.

Francine Della Badia, who heads North America merchandising and is succeeding Tucci, said sales of handbags priced at $400 or more had improved. Earlier this year, Coach had been struggling to sell those pricier products.

Sales at department stores also ticked up.

Excluding the effect of currency fluctuations, international sales rose 17 percent, helped by a 35 percent jump in China.

Net income for the quarter fell to $221.3 million, or 78 cents per share, from $251.4 million, or 86 cents per share, a year earlier. Excluding some one-time items, Coach earned 89 cents per share, in line with Wall Street forecasts.

—Reuters with CNBC.com

  Price   Change %Change
COH
---
MIKE KORS HO
---
KATE
---

Featured

Contact Retail

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Consumer