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Coach profit tops Street as efforts to reduce discounting help bottom line

BY Marianne Wilson

Coach reported better-than-expected profit for its third quarter as its turnaround efforts to reduce discounts on its goods sold in the United States gain increased traction.

The upscale retailer reported net income of $130 million, with earnings per diluted share of $0.46, in the quarter ended April 1, compared to $124 million in the year-ago period. Its results exceeded Wall Street expectations.

Coach also reaffirmed its full-year 2017 profit and revenue forecasts. Its results come as the chain is thought to be considering acquisitions, with the most recently reported target being luxury shoe brand Jimmy Choo.

“Now that Coach is on a clear path to recovery we believe it is right for the company to explore options for future growth, said Neil Saunders, managing director of GlobalData Retail. “Following a failed tilt at Burberry last year, Coach is rumored to have Kate Spade, Jimmy Choo and others in its crosshairs. Given Coach's successful turnaround and integration of Stuart Weitzman, we believe that such a deal could pay dividends and would allow Coach to create a portfolio of brands similar to other luxury houses. This would allow it to generate growth beyond that from its ongoing recovery.”

Coach’s total net sales, which include the company’s Stuart Weitzman division, fell 4% to $995 million in the quarter, less than expected. The company said its revenue miss was a result of its decision to elevate the Coach’s brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures, which negatively impacted sales growth in the quarter by approximately 150 basis points. Coach has pulled out of more than 250 department stores, according to CNBC.

Net sales for the Coach brand fell 4% to $915 million for the third fiscal quarter. Total North American Coach brand sales were down 5% to $474 million. Same-store sales rose 3%.

“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,” said Victor Luis, CEO of Coach. “And, despite our deliberate pullback in the North America wholesale channel and the impact of calendar shifts, we delivered earnings growth.”

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