Upscale handbag maker Coach Q4 profits up, shares down
Luxurious bag maker Coach (NYSE: COH) said net income rose in the fiscal fourth quarter helped by growth in China and people buying more high-end handbags in North America, but shares fell on account of falling margins.
During Tuesday afternoon trade, Coach lost $4.19, or 6.42% to $61.10 on the New York Stock Exchange, as dwindling margins are a concern for some analysts.
Coach is an example of a retailer "priced to perfection," according to Wall Street Strategies analyst Brian Sozzi, who noted gross margin fell to 71.8% from 73.3% a year earlier.
Revenues climbed 17% to $1.03 billion in the fourth quarter that ended July, 2. That compares with $950 million a year earlier. Coach attributes the higher sales to the success of its renewed focus on Men's and its digital strategies, it said.
The company, which makes upscale bags, watches and footwear, posted profits of $202 million, or 68 cents per diluted share, versus $195.5 million, or 64 cents per diluted share, in the year ago period.
Analysts, on average, had expected Coach to earn 65 cents per share on revenue of $1 billion, according to Bloomberg.
The 2011 fourth quarter included 13 weeks, compared with 14 weeks in 2010.
North American sales jumped 17%, while revenue at North American stores open at least one year rose 10%, excluding the extra week in 2010.
Sales at Coach Japan fell 7% impacted by the after effects of the earthquake and tsunami, the company said in a statement.
Coach said sales in China continued to be exceptional with same store sales rising at a double-digit rate, which helped offset the impact of higher costs and a slowdown in Japan that resulted from the March 11 earthquake and the tsunami.
However, operating margin fell to 30.3% from 31.2% a year earlier. Coach's margins have been hurt by higher costs.
The New York City-based company has been trying to hold the level on rising costs for labor in China by moving new production to lower-cost countries such as Vietnam and India, according to reports.
For fiscal year 2012, Coach said it was confident it could increase sales and earnings per share by double digits on a percentage basis.
The company had 345 retail stores and 143 factory stores in North America as of July 2.
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