COACH UP 16% IN QUARTER

Byline: Jennifer Weitzman

NEW YORK — Distancing itself from much of the battered luxury sector, American classic leather goods maker Coach Inc. demonstrated that luxury and value pricing can coexist Tuesday when it reported a first-quarter profit increase of 16 percent.
Net income for the quarter ended Sept. 29 was $12.5 million, or 28 cents a share, in line with its own projections as well as Wall Street’s estimates. Coach earned $10.8 million, or 25 cents a share, in the year-ago period. Excluding a $3.2 million credit in the year-ago period, income would have risen 65 percent.
Sales were $150.7 million, an increase of 14.6 percent over sales of $131.5 million last year. However, comparable-store sales fell 1.9 percent in the quarter with retail stores down 3.7 percent and factory stores down 0.6 percent. Comps have improved recently as the decline has diminished to 6 percent from the quarter’s end through Oct. 21, compared with the three weeks following Sept 11, which saw comps decline 15 percent.
Coach chairman and chief executive Lew Frankfort said on a conference call that meeting its financial goals “demonstrates the strength of our multichannel businesses and the continued strength in our business in Japan.”
“Coach is bucking the trend,” said Ladenburg, Thalmann & Co.’s retailing analyst Eric Beder, noting that its combination of luxury merchandise and affordable pricing has helped it avoid department store cancellations. “You get a bang for your buck.”
Looking ahead, Frankfort commented, “We know the second quarter and indeed the remainder of the fiscal year will be challenging and it is likely sales will remain volatile in the short term, but I am confident our strong brand and proven growth strategy in combination with our new marketing and cost-cutting initiatives will insure continued financial momentum.”
Nevertheless, Coach has modestly revised its sales and earnings per share targets for the balance of the fiscal year in light of the Sept. 11 events. It said it now estimates full fiscal year 2002 sales of at least $675 million, an increase of 12 percent from the prior year, and earnings per share of $1.60 to $1.65, consistent with consensus estimates. Second-quarter sales are projected to rise 7 percent to $225 million, with EPS forecasted to reach 92 cents versus the 88 cents a share recorded in the year-ago period.
Sales grew in each of Coach’s distribution channels, with direct to consumer, which consists primarily of its retail stores, rising 7 percent to $86.2 million from $80.5 million, driven by new and expanded stores. Indirect sales increased 27 percent to $64.5 million from $51 million, driven by strong gains in the international division and continued double-digit comps sale growth from Japanese consumers worldwide.
Coach said it plans to keep its retail store opening on track, growing 15 percent, or 20 new doors this year, with 13 coming in time for the holiday season. Coach currently operates 194 stores, 123 retail and 71 factory.