While second-quarter results at Coach Inc. indicate that the brand is far from fixed, there were some positive signs on the horizon.
For the three months ended Dec. 27, net income fell 38.3 percent to $183.5 million, or 66 cents a diluted share, from $297.4 million, or $1.06, a year ago. Excluding charges connected with its transformation to a lifestyle brand, net income was $200 million, or 72 cents. Sales in the quarter were down 14.1 percent to $1.22 billion from $1.42 billion. North American sales fell 20 percent to $785 million from $983 million, while comparable-store sales were down 22 percent. Analysts on average were expecting 66 cents on sales of $1.23 billion.
For the six months, net income fell 41.3 percent to $302.6 million, or $1.09 a diluted share, on a 12.2 percent sales decline to $2.26 billion from $2.57 billion.
And while some might point to the dismal comps decline to conclude that Coach’s positioning to transform itself to a lifestyle brand isn’t working, chief executive officer Victor Luis begs to differ.
“The results were in line with our expectations. People often forget that part of our strategy involves launching new products and new stores and pulling back on promotions.…We’ve pulled back on our preferred customer events and even our [online] outlet flash sales were pulled back from three events a week to less than one event in the second quarter. All that leads to the negative comps recorded,” Luis explained.
The ceo also said there are about 20 locations that now feature the new modern, luxury concept store, and “those are doing much better.” He explained “better” as “well beyond our expectations and better than the rest of the fleet with positive comps.” Luis added that in transforming the brand, it wasn’t just about a new bag or new leather, but also involving a change in the image of the brand in the mind-set of the consumer, “impacting all of their impressions of the brand, the new store environment, new staff uniforms, new store architecture and new marketing. All of that takes time.”
The green shoots that the company is seeing is sufficient to justify redoing 150 locations and turning them into the new luxury format.
As it moves into the next phase of its transformation, the company also elected to go with just one head for North America and one for marketing, as opposed to what was its coleadership structure.
Andre Cohen will become president for North America. He held the position of president and ceo of Coach China and Coach Asia. His responsibilities will include retail management, merchandising and planning, marketing and e-commerce.
David Duplantis, Coach’s president for global digital and customer experience, will expand his responsibilities to include global marketing and customer intelligence.
Francine Della Badia, who previously led North America retail, and Stephanie Stahl, who previously led global marketing and strategy, will both leave the company next month.
Luis declined to say much about the plans for its Stuart Weitzman acquisition, which it expects to complete in May.
“We’re really pleased. The synergies for both of us are terrific…This is about two great American brands coming together…We are incredibly excited about the opportunity for Coach to learn from them on footwear. Our shoe business through our licensee is $200 million, and the Stuart Weitzman business is over $300 million. Combined, we will occupy the number two position in market share just below Uggs, making us a true player in the sector. This is an opportunity for us helping them [in handbags and accessories] as it is about them helping us,” the ceo said.
Craig Johnson, president of research and analysis firm Customer Growth Partners, said, “We’ve noticed some positive trends at Coach. It’s still early, but customers are returning to Coach for the first time in years, a necessary precondition to returning to positive comps. And they are beginning to buy.”
Johnson noted the Weitzman deal is the kind of dramatic move Coach needed to make. “Shoes remain the number one reason women go to department stores, and they are the number two reason, after handbags, that they go to accessories/lifestyle stores — much more so than watches, eyewear or apparel. Getting footwear right is essential. Coach’s footwear didn’t stand out because it didn’t always mesh with the rest of the collection. Now they have the chance to have both Stuarts [Weitzman and Vevers] design a line where the products complement each other.”
Shares of Coach gained 6.8 percent to $38.94 in Big Board trading on Thursday.