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Coach Profits Climb 32.9 Percent in Quarter

Economic worries aside, Americans still want their Coach bags?driving the accessories producer to higher 4th quarter earnings and sales.

Coach

Consumers are exercising caution but that isn’t keeping Coach Inc. from boosting its bottom line and planning a new, higher-end concept.

The company said Tuesday that fourth-quarter profits jumped 32.9 percent and sales gained almost 20 percent. Although Coach expects the consumer to be squeezed well into next year, the accessories producer is exploring a more upscale business concept for 2010 that may operate independent of the Coach name.

“With the initiative, which we internally called Collection, we created a dedicated designer merchandising group,” Lew Frankfort, chairman and chief executive officer, told WWD. “We can develop this Collection outside of the Coach machine.”

He said the concept would launch in “its own freestanding stores,” probably in spring 2010, and would include women’s accessories, footwear and jewelry. It would provide a “halo effect” for the broader Coach brand, Frankfort said.

The ceo declined to be more specific about its brand identity: “It could have the Coach name,” he said. “It could also have separate branding. Maybe.”

What is certain is that the product offering will generally be at higher price points than those at Coach, but “markedly lower than European luxury brands,” Frankfort said.

In addition, Frankfort said he hasn’t seen any improvement in the economic slowdown and anticipates that it will last “way into 2009.”

Shoppers in focus groups told executives “it will get worse before it gets better and that they intend to spend less over the next 12 months at retail,” Frankfort said. “This requires Coach to offer great product at very compelling price points.”

During the three months ended June 28, the company posted net income of $213.5 million, or 62 cents a diluted share, compared with $160.6 million, or 42 cents, in the year-ago quarter. Excluding one-time items, the improvement in net income was 7.4 percent and earnings were 50 cents a diluted share, meeting Wall Street’s expectations. Sales rose 19.8 percent to $781.5 million from $652.1 million. North American same-store sales rose 6.7 percent.

Direct-to-consumer sales were up 22 percent to $659 million while indirect sales, encompassing wholesale activity, rose 11 percent to $123 million.

For the year, income rose 18 percent to $783.1 million, or $2.17 a diluted share, from $663.7 million, or $1.76, from the prior year. Excluding one-time items, the increase was 11.8 percent to $2.06 a diluted share.

Sales rose 21.7 percent to $3.18 billion from $2.61 billion. Direct-to-consumer volume was up 21 percent to $2.54 billion and indirect sales moved ahead 25 percent to $637 million.

Frankfort said the company achieved its results through “full-price sales, despite lower levels of traffic” because the firm, in part, was able to get consumers to spend more. In addition, there was more traffic at factory stores, which “offered deeper discounts to drive overall sales.”

One of the company’s goals in the new fiscal year is to increase its footprint in China, where it will open at least five company-owned Coach stores.

On the product side, Coach in September will introduce Zoe, a softer, more feminine version of its Carly line. It will launch another new line, Madison, in October for holiday, as well as a Coach Op Art logo line.

Also new for fall will be a softer leather line, featured in the Madison and Bleecker collections. But the lighter-weight leathers won’t mean lower price points for consumers or higher margins for Coach. They will, in fact, be more expensive with tighter margins.

The company’s initial guidance for the new fiscal year is for sales of about $3.61 billion, a 13 percent increase, and earnings, excluding nonrecurring items, of at least $2.25 a diluted share, about a 10 percent increase.

Coach shares ended the New York Stock Exchange trading session at $25.99, down 39 cents or 1.5 percent.