Shares of designer handbag maker Coach (COH) slumped nearly 17% on Tuesday as heavy promotions implemented during the period in an effort to lure people to its outlet stores failed to pay off and analysts expressed their disappointment.
The New York-based accessories designer posted better-than-expected earnings but soft sales. Jefferies on Tuesday cut Coach to “hold” from “buy.”
Revenue for the three months ended June 30 climbed 12% to $1.16 billion, below the Street’s view of $1.2 billion.
Net income in Coach's latest period was $251 million, or 86 cents a share, compared with a year-earlier $202 million, or 68 cents, topping average analyst estimates in a Thomson Reuters poll by a penny.
While international sales were robust during the quarter, led by distribution and productivity increases, an “increasingly promotional environment led to lower growth than expected” in North American factory stores, Coach CEO Lew Frankfort said in a statement.
As a result, Coach said it reinstated in-store couponing in certain outlets late in the period. Sales at stores open longer than a year in the U.S. closed the quarter up 1.7%.
“It’s important to note that we have significant pricing flexibility and a variety of marketing levers available in this channel, which allow us to balance productivity gains and margin improvement,” Frankfort said.
The CEO forecasts double-digit percentage sales growth globally in 2013, led by international markets as Coach continues to expand in emerging markets in Asia, particularly China. The company sees just mid single-digit percentage growth next year in comparable sales in North America.