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Bulking Up at Coach: Accessories Firm Eyes $5B in Sales by 2012

Coach Inc. delivered another quarter of robust sales and earnings growth on Tuesday but wants even more.

NEW YORK — Coach Inc. delivered another quarter of robust sales and earnings growth on Tuesday but wants even more: The handbag and accessories firm said it is aiming to double sales in five years.

The company posted a 36.5 percent jump in fourth-quarter profits while full-year earnings gained 34.3 percent from year-ago results. Sales swelled 30 percent in the three-month period, which was its 22nd consecutive quarter of sales growth of at least 20 percent.

“We’re pacing ourselves. We have a blueprint to double our volume to $5 billion over four to five years,” Lew Frankfort, chairman and chief executive officer, told WWD. Coach’s current sales volume is $2.61 billion.

For the quarter ended June 30, net income rose to $160.6 million, or 42 cents per diluted share, from $117.6 million, or 31 cents, in the same period a year ago as sales climbed to $652.1 million from $501.6 million.

For the year, net income rose to $663.7 million, or $1.76 per diluted share, from $494.3 million, or $1.27, a year ago, while sales grew 28.4 percent to $2.61 billion from $2.04 billion.

For fiscal 2008, Coach expects sales to gain about 21 percent to $3.16 billion, the company said in its quarterly report. “Operating income is expected to rise about 23 percent with an operating margin improvement of at least 50 basis points,” the company said in its statement. “Earnings per share are forecast to rise to at least $2.06, up about 22 percent from last year.”

The positive outlook did little to raise Coach’s share price Tuesday as investors took profits following a run-up of the stock prior to the earnings announcement. Shares of Coach closed down 5 percent to $45.46, which is about where the stock was prior to the gains made during Monday’s run-up.

Of note during the quarter were sales in Japan, which gained 19 percent on a constant-currency basis. “In Japan, we were particularly pleased with our outstanding sales and market share growth in both the fourth quarter and for the year, which we achieved despite continued softness in the imported accessories market,” Frankfort said in a statement. “Our rapidly expanding sales in Japan reflect the success of our distribution strategy, and demonstrate how well the Coach proposition resonates with the stylish Japanese consumer. This was clearly evidenced by the success of Ergo, reflecting the appeal of these lightweight leather handbags with minimal hardware.”

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If past successes — such as the introduction of its lifestyle collection Ergo here and in Japan, and a limited launch of jewelry and fragrance — are any indication for the future, Coach will indeed be busy in the months ahead. On the company’s agenda are:

-?Belted versions of its Ergo bags using hardware in September.

-?An expanded jewelry offering with an all-store distribution also in September.?

– A second lifestyle platform called Bleecker in October, followed by the launch of another lifestyle collection called Heritage Stripe, set to launch in early spring.

But Coach is being cautious about its expansion plans. While it initially forecast it would open two stores for its Legacy collection this year, one in New York and one in Los Angeles, it now will open only one, on Bleecker Street in Manhattan around mid-October. “It’s in our backyard, making it easier for us to micromanage, which we like to do in a pilot environment. We’ll use that as a laboratory for us. Based on our learnings, we’ll decide how to expand beyond that,” Frankfort said.

Not that Coach doesn’t continue to experiment. The company late last month added Coach Clique as a section to its Web site, which provides updates on new styles, suggestions of the season’s must-haves and even a horoscope section to find that perfect bag.

“During the last 12 months, we had 50 million unique visits, with the average consumer spending over six minutes during each visit. She enjoys our site, and our objective is to broaden her experience and give her more opportunities to interact with Coach,” the ceo said.

The entire site gets updated monthly to coincide with the cadence of the new floor displays in Coach stores. There are also constant updates on availability of some products, such as when a product is sold out, at which point the item is removed from the site.

“There are some [items] where we offer seasonal colors, which have only one production run. Our goal is sell out before the end of the season,” Frankfort said.

While Coach offers a range of opening price points, it has increased the number of bags in the $400-plus category, particularly for many of its limited edition bags. A Thompson Top Handle bag, a capsule group of limited edition styles, retails for $898, while a Lily Legacy Satchel in the extra large size sells for $1,198. Coach’s Hamptons Village Large Carryall, featuring an updated look for the widely successful collection, sells for $798.

Frankfort said on a conference call with analysts, “We are seeing a continuation of about 20 percent growth in the premium handbag and accessory category in North America and heightened interest in the category globally as it takes hold in emerging markets for luxury goods such as greater China.”