Coach 1941 bag collection

Shares of Coach Inc. rose 5.1 percent in pre-market trading after the accessories firm said fewer discounts boosted its bottom line, contributing to an 8.6 percent increase in third-quarter profits.

The company reported profits for the quarter were $122.2 million, or 43 cents a diluted share, up from $112.5 million, or 40 cents, a year ago. On an adjusted basis, net income was $130 million, or 46 cents, in the quarter.  Net sales slipped 3.7 percent to $995.2 million from $1.03 billion, due primarily to a shift in strategy for its Coach brand that included a reduction in promotional events and department store door closures.

Coach beat Wall Street’s consensus EPS estimate of 44 cents by 2 cents, but missed its sales forecast of $1.02 billion due to the strategy shift.

Victor Luis, chief executive officer of Coach Inc, called the results solid and “very much in line with our expectations and our strategic initiatives. In a volatile and complex global environment, we delivered continued positive comparable store sales for the Coach brand in North America and gross margin expansion in each segment, while tightly controlling costs.”

He added that the company continued to drive growth for its directly-operated businesses in Europe and Mainland China.

For the Coach brand, net sales were $915 million in the quarter, down 4 percent, while North American Coach brand sales were down 5 percent to $474 million as comparable store sales gained 3 percent. Gross margin was 71.7 percent, up 20 basis points of benefit from currency.

For the Stuart Weitzman brand, net sales were $80 million, compared with $79 million a year ago. The company said gross margin for the quarter was 62.1 percent, an increase of 390 basis points due to channel mix, benefit of currency and lower promotional levels.

For fiscal 2017, Coach reiterated the operational outlook outlined in January. It currently expects revenue guidance to increase in the low single digits, with an operating margin forecast of between 18.5 to 19 percent. Taken together, Coach has said that it projects double-digit growth in both net income and earnings per diluted share for the year.

Shares of Coach were trading at $40.70 at 7:35 a.m.

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