By Phil Wahba
NEW YORK (Reuters) - Leather goods maker Coach Inc
said shopper traffic to its full-line stores slowed
during the fourth quarter, raising concerns about its sales
growth and sending shares down almost 4 percent.
While Chief Executive Lew Frankfort said on a call that far
more of the shoppers who did step into Coach stores made
purchases, helping to boost sales, the lower traffic trend
raised concerns on Wall Street about Coach's ability to meet
its sales targets.
"You don't want to hear them say that traffic is falling,
especially at the start of the fall season," said Brian Sozzi,
an analyst with Wall Street Strategies.
Frankfort's remarks overshadowed better-than-expected
fourth-quarter results, boosted by strong demand for its less
expensive Poppy handbag line and rapid growth in China.
In an earlier statement, Frankfort said he was confident
Coach's sales and profits could continue to rise at a
double-digit pace, aided by expansion in places such as Western
Europe and China, where Coach is just entering the market.
But that expansion, coupled with higher leather costs,
could eat away at Coach's profit margins, Sozzi said.
"They basically told the market they won't be able to beat
year-over-year comparisons," he said.
Coach also reported shipments in its wholesale business to
U.S. department stores were flat during the quarter, compared
with a year earlier. But Frankfort told Reuters it was better
to risk losing sales than start the discounting many department
stores were engaging in.
"We have been reluctant to be promotional," he said in an
OUTLETS, MEN AND CHINA HELP
Net income for the fourth quarter, which ended July 3,
rose 34.1 percent to $195.5 million, or 64 cents per share,
from $145.8 million, or 45 cents per share, a year earlier. The
earnings beat Wall Street forecasts of 56 cents per share,
according to Thomson Reuters I/B/E/S.
Coach said sales rose to $950.5 million in its fourth
quarter, while analysts had forecast sales of $888.87 million.
The period included an extra week, without which Coach said
sales would have been up 13 percent, and earnings per share
would have been 23 percent higher at about 56 cents.
Sales at North American stores open at least a year rose
6.3 percent during the quarter.
Frankfort said that a strategy to entice shoppers with an
extensive line of entry-priced products and to expand its
outlets had driven sales in North America, which makes up the
bulk of the business.
While China now accounts for about 3 percent of Coach's
sales, Frankfort said that by mid-decade, that could rise to 10
percent, or about $500 million.
"It (China) has the opportunity within a few years to
play a much more significant role," Frankfort told Reuters.
For the fiscal year that just ended, retail sales in China
doubled. Coach has 41 stores in China as of July 3, and has
plans to open another 30 locations there this fiscal year.
Coach also plans to build up its men's business,
particularly in Japan and the United States. Sales to men
account for about 4 percent of overall sales and could reach 10
percent within a few years, Frankfort said.
Coach's gross margins rose 2.9 percentage points to 73.3
percent, partly due to lower leather prices. Frankfort said he
expects the costs of raw materials to edge higher this year.
Coach operates 342 retail stores and 121 factory outlets in
In early afternoon on the New York Stock Exchange, Coach
shares were down 3.8 percent at $36.98.
(Reporting by Phil Wahba, editing by Michele Gershberg,
Maureen Bavdek and Gunna Dickson)