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Sales, Profits Up at Coach

Second quarter boosted by North American comps and sales in Japan and China.

The Kristin linen tote that will hit stores in late February.

Shares of Coach Inc. fell 0.5 percent Tuesday despite second-quarter results that rose 25.9 percent and beat Wall Street’s expectations by 3 cents a share.

For the three months ended Jan. 1, income jumped to $303.4 million, or $1 a diluted share, versus $241 million, or 76 cents, a year ago. Analysts on average were expecting 97 cents a share for the quarter.

Sales rose 18.7 percent to $1.26 billion from $1.07 billion. The company said direct-to-consumer sales rose 17 percent to $1.1 billion, while comparable-store sales were up 12.6 percent. Sales in Japan were flat on a constant-currency basis while point-of-sale sales in China comped at a double-digit rate, the company said.

Gross margin was essentially flat at 72.4 percent of sales in both periods.

For the six months, income rose 29 percent to $492.3 million, or $1.62 a diluted share, from $381.8 million, or $1.19, last year. Sales gained 19 percent to $2.18 billion from $1.83 billion.

Shares of Coach on Tuesday closed at $53.09, down 28 cents, in New York Stock Exchange trading. They had slumped as low as $51.74 following the morning disclosure of results.

Lew Frankfort, chairman and chief executive officer, said on a conference call, “We experienced strong response to our new collections, and our pricing and assortment strategy continued to resonate with consumers worldwide. We’re well situated to build upon our leadership position and continue to gain market share.”

Executives on the call highlighted the company’s retail store strategy, including the expansion of its men’s initiative and its international push focusing on Asia and Europe.

Frankfort, the first in January 2008 to call the downturn a consumer-led recession, told WWD that, according to the firm’s quantitative research, “U.S. consumers are gaining confidence in their economic outlook. In fact, over a third believe the economy is improving. That’s the highest level in three years. With regard to Coach, the consumers said they have a ‘substantially higher intention to purchase Coach over the next 12 months’ than she did this time last year.”

Frankfort indicated that a diversification of the company’s production and sourcing is looming and that he “expects production outside of China to rise to 50 percent over the next five years.” The firm currently produces about 85 percent of its products in China, with the other 15 percent doled out to locales such as India and Vietnam.

He noted that, at least so far, leather costs haven’t risen as fast or as high as cotton prices.