Analysts Mixed on Coach

Analysts ranged between neutral and positive on Coach Inc. after the company last Tuesday beat the Street and singled out footwear as a significant long-term opportunity.

“[Nearly flat] North American comps, tepid Japanese growth and a fierce competitive domestic handbag environment all point to a company trying to reignite material organic expansion and still looking for the right mix and answers,” said Eric Beder, analyst at Brean Capital. “The impending departure of chief merchant Reed Krakoff also adds uncertainty to the mix.”

UBS analyst Michael Binetti said he was encouraged by initial results in new categories, such as footwear, but was concerned about Coach’s market share in a competitive U.S. climate.

More upbeat on the New York-based firm were Citigroup analyst Oliver Chen and Jennifer Black, president and CEO of Jennifer Black & Associates.

“We’re buying more than just a handbag,” said Chen. “[Coach is] now a lifestyle brand, with success of footwear and more accessories, watches and outerwear on the horizon.”

Meanwhile, Black noted simply that “shoes, glorious shoes” drove the firm’s third-quarter performance.

In March, Coach relaunched shoes in more than 170 retail stores in North America, featuring ballet flats, fashion wedges and heels, and on-trend sneakers. Shoe salons also were installed in a select number of flagship stores, to make footwear the feature of shop windows in at least 75 locations. Spearheading the footwear effort is Javan Bunch, SVP of licensing.

Michael Tucci, president of Coach’s North American retail division, told analysts on a conference call Tuesday, “Business in these footwear locations went from about 3 percent to almost 12 percent of the business in five weeks and has positively impacted productivity.”

He added, “Our emphasis on growing this category will continue to build as we head into fall and include more-dominant fashion footwear assortments in our wholesale locations as well. We’ll continue to focus on building our key items, evolving our mix and growing both [average unit retail prices] and overall penetration level.”

Lew Frankfort, chairman and CEO, also noted the results of the footwear relaunch are extremely satisfying.

“We are moving forward to launch a head-to-toe capsule group that will be anchored in accessories, which bridges to innovation in handbags. One of the opportunities for Coach is to offer a more sophisticated tailored look that will appeal to consumers who are both in our franchise, as well as to our new consumers, and we will begin to see some of these styles during our holiday quarter,” he added.

For the three months ended March 30, Coach’s net income rose 6.2 percent to $238.9 million, or 84 cents a share, from $225 million, or 77 cents, a year ago. Net sales increased 7.1 percent to $1.19 billion from $1.1 billion.

North American sales rose 7 percent to $792 million, from $738 million last year. International sales improved 6 percent to $382 million from $359 million. Comparable-store sales inched up 1 percent, while direct sales jumped 8 percent.

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