Coach profit rises but says Japan will hurt

NEW YORK (Reuters) - Coach Inc <COH.N> reported a higher-than-expected quarterly profit as sales at its North American stores soared, but the upscale handbag maker warned that the disasters in Japan would dent results.

Coach said sales rose 14 percent to $950.7 million, fueled by a 10.3 percent increase at its North American stores open at least a year.

The company, known for its signature handbags and leather accessories and jewelry, said its results in Japan were hurt by the March 11 earthquake and the tsunami and nuclear disaster that followed.

Coach last year got about 18 percent of its sales in Japan, and said it lost $20 million in sales and 2.5 cents of earnings per share during the third quarter since the events there.

It expects to lose another $20 million in sales, or 2 percent, and between 2 cents and 3 cents per share in profit in the current quarter, which ends July 2.

"The immediate impact to our Japanese business was significant, with improvement more recently," Chief Executive Lew Frankfort said in a statement.

Coach runs 174 stores in Japan and said seven were still closed, and another four not expected to reopen before July.

Coach has positioned itself in the "affordable luxury" segment in the past two years as shoppers traded down from expensive items such as handbags by Hermes <HRMS.PA>.

In the past few years, it has lowered average prices on its handbags about 10 percent by introducing new, more affordable lines and expanding its outlets.

Frankfort said sales at its outlet stores have been "remarkably strong." Coach's sales, which beat Wall Street forecasts, also got help from its men's products and China in particular.

Sales in China make up less than 5 percent company-wide, but are expected to rise to 10 percent by 2014.

Coach reported net income of $186 million, or 62 cents per share, for the third quarter that ended April 2, up 18 percent from $157.6 million, or 50 cents per share, a year earlier.

That beat Wall Street analysts' average forecast of 60 cents per share on sales of $947.2 million, according to Thomson Reuters I/B/E/S.

Coach's gross margin, which measures the profitability of the goods it sells, held steady at 72.8 percent.

Coach raised its dividend 50 percent to an annualized 90 cents per share.

(Reporting by Phil Wahba; Editing by Lisa Von Ahn and Maureen

Bavdek)