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Coach Q1 Net, Sales Soar But Holiday Outlook Cautious

‘Weak traffic trends’ in U.S. stores prompt second-quarter guidance below Wall Street view as first-quarter profits and sales beat analysts’ estimates.

Shares of Coach Inc. were off nearly 12 percent in midday New York Stock Exchange trading Tuesday after the firm posted strong first-quarter results but disappointed investors with holiday guidance that reflected concern about the tone of retail business.

During the three months ended Sept. 29, the New York-based purveyor of accessories and gifts for women and men posted net income of $154.8 million, or 41 cents a diluted share, 23.2 percent better than the $125.6 million, or 34 cents, reported in the comparable quarter of last year. Analysts on average expected earnings of 40 cents. Excluding discontinued operations, first-quarter earnings in last year’s period were 31 cents a diluted share.

Sales advanced 27.8 percent to $676.7 million from $529.4 million in the year-ago quarter. The company said wholesale revenues soared 35 percent to $169 million while direct-channel sales increased 26 percent to $508 million.

“While we’re well positioned for the holiday season, we are however concerned with recent traffic trends in our North American retail stores, reflecting the retail environment and the unusually difficult comparisons with last year,” said Lew Frankfort, chairman and chief executive officer, in a statement. “Thus, we believe it’s prudent to be more conservative in our comparable-store sales guidance for the balance of the fiscal year.

“At the same time, it’s important to underscore our overall continuing positive outlook, including the delivery of a 20 percent revenue gain in this holiday quarter,” he continued.

During the holiday quarter, same-store sales are expected to grow in the low-single digits, although strong traffic trends in higher-end outlet centers are expected to give stores in this channel a lift, with same-store sales projected to land in the mid-teens.

Although the company reiterated its expectations for full-year earnings per diluted share of $2.06 on sales of $3.17 billion, its second-quarter estimates of earnings per diluted share of 68 cents on sales of $970 million fell below analysts’ estimates of 70 cents and $984 million, respectively.

Despite recent weakness in Coach’s own stores, Frankfort identified handbags selling for more than $400 as its “fastest-growing price segment.”

Shares of Coach were down 11.9 percent, or $4.93, to $36.54 in midday trading Tuesday.

For complete coverage of Coach’s results, see Wednesday’s WWD.