In the money: Headwinds cause Coach to be cautious
Footwear, handbags and accessories retailer Coach Inc has said it remains cautious in its outlook after a tough holiday season and the impact of Hurricane Sandy weighed on second-quarter sales in North America.
The New-York based company reported a 4% rise in second-quarter revenues as North America and international markets saw sales increase 1% to US$1.08bn and 12% to $411m respectively.
Chairman and CEO Lew Frankfort said the group was "disappointed" with its North American performance, particularly in women's where results were below expectations.
Two overarching issues impacted results, Frankfort told investors on Wednesday (23 January).
"First was the muted consumer environment in the US with a fiscal cliff uncertainty weighing on shoppers and a slow recovery from Hurricane Sandy in the Tri-State area."
This was coupled with increased competition and heightened promotional activity within the women's handbag and accessories category during the run-up to Christmas.
However, Frankfort said the company remains committed to tackling the difficulties it faces in the region. "I just want you also know that we are extremely focused and single minded and confident in our ability to address the near term challenges in North America. At the same time, we will be continuing to leverage the global opportunity as we evolve the Coach brand," he said.
CFO and executive vice president Jane Nielsen added: "Looking at the remainder of fiscal 2013, we're mindful of balancing the impact of the muted consumer environment and the challenging market dynamics in North America with our optimism around men's and the strong international expansion opportunities for Coach.
"We also recognise the yen is likely to be an accelerating headwind over the remainder of the fiscal year. Therefore, our second half outlook has become more cautious."
While Coach was let down by its poor performance in North America, it was boosted by its international sales growth, which represents nearly one-third of total sales. As a result, net income edged up 1.7% to $353m for the quarter to 29 December.
The company, which opened 13 new stores in mainland China during the quarter, said sales in the country jumped around 40% in the same period, compared to last year. The growth was driven by distribution and double-digit same-store sales growth.
"Clearly, the Chinese consumer has embraced Coach, as evidenced by these results, as well as the increasing contribution of the Chinese stores to global sales and the extremely high repurchase intent among existing consumers," Frankfort said.
The retailer directly operates 92 stores in Asia, including Singapore, Malaysia, Taiwan and Korea, following a number of distributor acquisitions over the last 18 months.
Investment in footwear
As part of the retailer's strategy to transform the label into a broader lifestyle brand, anchored in accessories, Coach said it plans to "move forward" with footwear by relaunching the product in select stores.
In March, Coach will relaunch shoes such as fashion wedges, heels and sneakers in some 170 stores, according to North American Group president Michael Tucci.
The aim is to move away from just offering casual sneakers to a more complete offer of footwear for special occasions, Tucci stressed.
"There is a broader opportunity in footwear in more stores, which you'll see this spring. But we believe that moving the needle in footwear will require a more significant investment in store presentation, inventory marketing, and really working to re-space the business in our stores in terms of providing a better shopping and service environment. That will take more time. That's more of a long-term play," he added.
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