Coach's profit jumps 8.6%, topping Street views, on less discounting

Key Points
  • Coach posted an 8.6 percent jump in quarterly profit.
  • The handbag maker cut back on discounting its products in the U.S.
A Coach store
Mauricio Piffer | Bloomberg | Getty Images

Coach reported a higher-than-expected quarterly profit, as the handbag maker cut back on discounting its products in the United States, sending its shares up 7 percent in premarket trading.

The company also reaffirmed its full-year profit and revenue forecast.

The New York City-based company, which is trying to regain its premium-brand tag, has limited promotions and pulled out of over 250 department stores.

Coach and other affordable luxury brands such as Michael Kors took a hit after they expanded their retail presence too quickly, diluting the exclusivity that once led shoppers to line up for the next hot handbag.

Coach said net sales in the third quarter ended April 31 fell 3.7 percent to $995.2 million, partly due to its decision to cut discounts and shut stores.

But Coach's turnaround efforts seem to be gaining traction.

Profit rose for three straight quarters last year before slipping in the latest quarter. The company has had more patchy success at boosting sales.

"Continuing to showcase its shift from recovery to consistency, Coach posted a strong gross margin-driven EPS beat on slightly lower sales as one of the few that have been able to "shrink to grow"," Instinet analyst Simeon Siegel said in a note.

Coach is expected to be looking at acquisitions to boost revenue. The company made an offer in March to buy rival handbag and accessories maker Kate Spade, sources told Reuters last month.

Coach is also eyeing luxury shoe manufacturer Jimmy Choo, the Telegraph reported last week. Last month, the company named former Jimmy Choo boss Joshua Schulman as president and chief executive of the Coach brand.

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.

Analysts on average expect revenue of $4.53 billion and profit of $2.14 per share for 2017, according to Thomson Reuters I/B/E/S.

Coach said it continues to expect sales at its luxury footwear brand Stuart Weitzman to grow at a double-digit pace for the fourth quarter, after a mere 1 percent increase in the latest quarter - hurt by the shift in the timing of its international wholesale shipment.

Excluding items, the company earned 46 cents per share in the third quarter in the third quarter ended April 1, beating analysts' estimate of 44 cents per share.

Net income rose 8.6 percent to $122.2 million, or 43 cents per share.

Coach shares, which rose to $41.50 before the bell on Tuesday, are up 10.6 percent this year up to Monday's close.