Coach Sales Increase As Turnaround Continues
Coach Inc announced strong demand for handbags that were higher priced at its brand name retail stores and said the company would cut its business with different department stores in an attempt to wean its customers in the fashion industry from discounts.
Sales at the maker of handbags in existing stores in North America grew for only the first time in over three years during the most recent quarter, which is evidence the turnaround by the company is beginning to take hold.
CEO Victor Luis said to analysts during a call that the results ended a year where the Coach brand returned to growth while the brand elevated in perception.
He said sales would continue improving in the ongoing fiscal year even though the company will reduce its sales to different retail chains.
Coach is planning to yank its handbags from 250 department stores during the ongoing fiscal year, which would lower its channel of distribution by close to 25%.
The company will also reduce the money it is providing department stores to cover costs of discounts, which would keep the brand from appearing in certain promotions.
This move will hurt operating margins at the company, with most of that effect during the first quarter.
Luis said the move was a surgical one that was meant to drive sustainable health of the brand long term.
He added that he wanted to avoid confusing consumers who see Coach products selling for prices that are higher at its own retail stores than at many of the department stores.
Coach upgraded both handbags and accessories through more fashion and better quality, while cutting back on discounts, efforts that helped the company stem a long decline in sales in its brand across its home market, where its sales at existing stores were up 2% during the three months ending July 2.
Challenges still are in line for Coach, including sluggish overall growth in its handbag sales, competition from rival Michael Kors as well as others and high rates of discounting in retail locations.
Last week, rival Kate Spade & Co stock tumbled following the announcement the company was slashing its forecasts for 2016.
Investors have seen Coach stock rise 25% since 2016 started and are looking for even more growth. Shares of coach were down 50 cents in Tuesday afternoon trading.
Three hundred more stores were remodeled during the just ended fiscal year with total remodels now at 450 worldwide.