Coach China leads transformation

Coach Inc says its net sales totalled US$1.27 billion for the second fiscal quarter – up 4 per cent year on year, and up 7 per cent on a constant currency basis.

China was a primary driver of the increase in the three months to December 26, with sales up in the double digits and Japan also performed well for the New York based luxury accessories and lifestyle brands, which also owns Stuart Weitzman.

Gross margin slipped from 68.9 per cent to 67.4 per cent, but gross profit rose $18 million to $859 million.

Total Coach China sales rose 2 per cent in dollars and 5 per cent in constant currency with double-digit growth and positive comparable store sales on the Mainland offset in part by continued weakness in Hong Kong and Macau.

In Japan, sales rose 2 per cent on a constant currency basis, despite a decrease in square footage and consistent with expectations, while dollar sales declined 3 per cent, reflecting the weaker yen.

“Sales for the remaining directly operated businesses in Asia grew modestly in constant currency but declined in dollars, while Europe remained very strong, growing at a double digit pace in both total and comparable store sales,” the company said in its earnings statement.

CEO Victor Luis said the result reflects “the most significant progress to date” on the company’s transformation plan despite the difficult retail environment globally.

“We drove further sequential improvement in our North America bricks and mortar business – led, as expected, by our retail stores, while our outlet store channel also strengthened against a backdrop of lower tourist traffic and a highly promotional environment.

“Our international businesses posted strong growth on a constant currency basis, highlighted by double-digit increases in Europe, and Mainland China, as well as sales gains in Japan. Overall, our results continue to give us confidence that the cumulative impact of our actions will result in a return to top line growth this fiscal year and positive North American comps by our fourth quarter.

“We were also excited about Stuart Weitzman’s results during the quarter, which exceeded expectations. Importantly, we are effectively integrating Stuart Weitzman to Coach Inc while continuing to successfully execute the Coach brand transformation,” said Luis.

“At points of sale, sales in international wholesale locations increased slightly, driven by strong domestic performance offset in large part by relatively weak tourist location results. Net sales into the channel grew significantly from prior year positively impacted by shipment timing to ensure appropriate inventory positions for Chinese New Year,” the company said.