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Coach Q4 profit slides but matches Street expectations

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New York City Luxury handbag and accessories maker Coach on Tuesday reported a 32% drop in fiscal fourth-quarter profit on nearly flat sales amid the weak retail environment. For the quarter ended June 27, net income tumbled to $145.79 million from $213.52 million a year ago. The results were in line with analyst expectations.

Sales for the quarter dropped marginally to $777.74 million from $781.50 million in the prior-year quarter. Direct-to-consumer sales of Coach rose 3% to $683 million. North American comparable-store sales declined 6.1% from the prior year.

Lew Frankfort, CEO said, "We maintained the integrity of our full price proposition and did not go on sale in retail stores this fiscal year. This also allowed us to generate robust sales in our factory channel, where we were able to drive business by utilizing appropriate marketing levers."

In a Reuters report, Frankfort said the economy is still clearly in a severe recession and consumers will be extremely cautious for the rest of the year. But he said he is beginning to see signs of improvement.

"It's early days for our new quarter, but four weeks into it, we definitely see a sequential improvement in traffic," he said in a telephone interview, according to the report.

Franford added that Coach will outperform other brands as it ramps up its new Poppy line of less expensive bags, which has been very well received, according to the company. The average price of a Poppy bag is $260, about 20% less than the usual Coach purse.

Coach will open Poppy stores in Japan and possibly the United States at some point, Frankfort said on a conference call, adding it is also developing a few stand-alone men's shops in Japan.

The company said it will open 20 new North American retail stores in fiscal 2010 and accelerate store openings in China, where sales have been strong. It said it now expects to open about 15 stores in China, up from about 10 previously targeted. Over the next five years, it expects to open at least 50 stores in China.

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