Byline: Jennifer Weitzman

NEW YORK — With many specialty retailers issuing profit warnings, Coach said it rode out the holidays with positive sales results and actually expects to be ahead of plans for its fiscal second quarter.
The New York-based luxury leather maker said it is raising earnings expectations for the quarter ended Dec. 30 to 85 cents a share from its original forecast in October of between 77 and 80 cents, up from 65 cents earned last year. The current analysts’ consensus estimate is 77 cents. Profits are expected to increase more than 30 percent from the $28.3 million earned in the comparable period.
Lew Frankfort, chairman and chief executive, said in a statement that the company raised expectations “as a result of our double-digit sales growth, stable pricing policy and increased operating leverage.”
Sales growth also stemmed from “the consistent application of our philosophy of a 365-day full-price proposition in our retail stores,” Frankfort said.
“Our consumers continue to embrace Coach’s broader product offering and updated presentation and recognize the superior quality and value that Coach offers,” Frankfort said. He pointed to the company’s increase in gross margins, despite the season’s promotional retail environment.
Coach sold 7.4 million shares, or 17 percent, at $16 each, raising $118.08 million in its initial public offering on the New York Stock Exchange on Oct. 4. Sara Lee Corp. retained 83 percent, which it is expected to sell sometime in the coming year. Coach, which was founded in New York in 1941 and had sales of about $550 million last year, has been owned by Sara Lee since 1985.
The revised projections sent Coach’s stock up $1.88 to close at $25.13.
Sales for the second quarter increased 10.4 percent, to $214.2 million from $194.1 million in the year-ago period and were in line with company expectations. Direct-to-consumer sales increased 8 percent, to $145.7 million from $134.8 million. Comparable-store sales rose 2.5 percent, including retail stores up 1.1 percent and factory store sales up 4.4 percent.
Wholesale revenues rose 15.3 percent, to $68.4 million from $59.3 million.
Coach, which currently has 106 stores and 63 outlets, also is planning to grow by renovating its stores to better showcase the new assortments and “reinforce a consistent brand position.” Sixteen stores renovated by last November saw same-store sales growth of 16 percent from November through May versus a 7 percent increase at nonrenovated stores. By July 30, stores will reflect the new design, with the rest to be renovated by June 2003. About 80 key international units will be converted by July 2001, and 40 of its leading U.S. department store locations will be remodeled by December of this year.
The firm plans to open 50 full-price stores over the next three years.
Coach will report final second-quarter results after the close of the market Jan. 22.

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