NEW YORK — Things aren’t getting any easier for Coach Inc.
Shares of the accessories giant fell 6 percent Wednesday after the company reported disappointing second-quarter results that reflected a 15.7 percent decline in net income and continued struggles in the North American market.
Coach said net income for the quarter ended Dec. 28 fell to $297.4 million, or $1.06 a diluted share, from $352.8 million, or $1.23, a year ago. Net sales fell 5.6 percent to $1.42 billion from $1.50 billion. Analysts were expecting $1.11 a diluted share on a revenue estimate of $1.48 billion.
The company said sales in North America fell 9 percent to $983 million from $1.08 billion a year ago. North American direct sales were down 8 percent, with comparable-store sales declining 13.6 percent. International sales were up 2 percent to $425 million from $418 million a year ago.
For the six months, net income fell 10.2 percent to $515.3 million, or $1.82 a diluted share, on a net sales decline of 3.6 percent to $2.57 billion.
In his first conference call to Wall Street as chief executive officer, Victor Luis said the quarter’s results were hurt in part by lower traffic in the firm’s North American stores, which was offset by growth in the men’s and footwear categories.
Luis added that the current transformation is a “multiyear endeavor” that requires single-mindedness as well as tenacity and patience before it will be fully reflected in the company’s financial performance.
Randal J. Konik, analyst at Jefferies, said, “We now believe a turnaround in core product isn’t likely to take shape until at least September, coinciding with creative director Stuart Vevers’ first full collection.”
He has a “hold” on the stock, with a price target of $45.
Sterne Agee’s Ike Boruchow noted that while “full-price comps likely worsened somewhat, we believe the factory channel was the primary driver of the sales miss.” He added that Coach “is in a tough position right now due to competition and discounting across the space, but [that] new product introductions and the ongoing lifestyle brand transformation could kick-start the business by yearend.”
In a telephone interview, Luis said based on the company’s internal consumer focus surveys, there has been no real change in the confidence of Coach consumers over the last few quarters. “The shopping behavior has changed, which is very real. What’s happening in the digital world is that the consumer is leveraging the Web to gather information prior to shopping. This drives efficiency to the consumer. They know which store they want to visit [at the mall] instead of window shopping,” Luis said, concluding that the new behavior also reduces the number of impulse purchases.
That means the brands in a mall, such as Coach, “need to have great product, a great store environment and great customer service,” the ceo said.
The company is following a strategy similar to the one it adopted in 2008 during the economic downturn. This time — instead of becoming more price sensitive focusing on the $200 to $300 price range and introducing the new Poppy line, as it did in 2008 — the brand is moving more upscale in line with its lifestyle transformation, targeting the $300-plus price bucket, according to Luis.
During the conference call, Francine Della Badia, president of North America Retail, said, “When we do offer fashion innovation, our customers do respond.” She pointed to the new capsule handbag silhouette the Borough Bag, and the tiered offering of more fashion handbags in select flagships where the company saw strong sell-throughs in the $548 to $798 price range.
Della Badia emphasized, “Importantly, we experienced no price resistance. More generally, the above-$400 price bucket grew in penetration and represented 22 percent of handbag sales, with the strongest performance at the upper end of our range, $600 and higher. Emotion clearly trumps price, as our consumer is willing to pay more for compelling product.”
Luis in the telephone interview said that men’s continues to represent a global opportunity for the company. Noting the total global premium market for handbags and accessories at $34 billion, men’s at $6.5 billion represents 18 percent of the market. For Coach it’s 40 percent of the market in China and 20 percent in Japan. “Our target is to get to a global penetration for the category at 18 percent,” he said.
As the company moves along in its transformation to a lifestyle brand, it’ll follow what other competitors — both brands and retailers — are doing and that’s reviewing the Coach store base.
Luis didn’t say whether the new business model would entail a shift in store square footage due to how it might showcase the collection, but he did say the company is taking a “holistic” perspective regarding its North American fleet of stores. In considering which ones to keep open or close, it will also evaluate how to use the retail space more efficiently. Some stores will see retrofitted interiors and others may see new categories, such as taking out the cash wrap section and putting in a footwear department plus sitting area, the ceo said.
Coach’s first collection from Vevers will be presented in February during New York Fashion Week.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews