Coach remains in transition after Q2 profit fall
- Q2 profit falls 7.3% to $170.1m
- Sales up 4% to $1.27bn
- Analyst says company "remains in transition"
Coach saw its net profit fall, but sales grow in the quarter
Coach Inc "remains in transition", one analyst has said, after the luxury accessories business posted a rise in second-quarter sales thanks to its restructuring efforts and attempts to move away from excessive discounting – but profit declined.
Net income amounted to US$170.1m for the three months to 26 December, compared to $183.5m in the same period of the prior year.
Sales increased 4% to $1.27bn from $1.22bn the year before, with Coach brand sales falling 3% to $1.18bn and its most recent acquisition Stuart Weitzman totalling $94m.
For the Coach brand, sales in North America dropped 7% to $731m, while international sales rose 4% to $437m. Gross margin declined 110 basis points to 67.7%, which the company blamed on currency headwinds. Total gross margin slipped to with a 67.4% from 68.9%.
"We are very pleased with our second quarter performance, which was consistent with our expectations and reflected the most significant progress to date on our transformation plan despite the difficult retail environment globally," said CEO Victor Luis.
While the company continues to expect Coach brand revenues to increase by low-single digits, foreign currency is now forecast to negatively impact overall fiscal 2016 revenue growth by 225-250 basis points, up from its earlier guidance of 200 basis points.
Negative foreign currency effects are now also projected to impact annual gross margin by 90-100 basis points, up on the lower end of its 80-100 forecast.
Stuart Weitzman brand sales are now expected to reach $340m, above its earlier forecast of $335m.
Conlumino analyst Håkon Helgesen noted: "In our view, while Coach is far from being a completely broken brand it remains in transition."
In trying to move from a position of ubiquity and volume fuelled by promotions, Helgesen believes the company is struggling to regain the premium, more niche status it once held.
"As such it is currently stuck in something of a netherworld that is inflicting a measure of financial pain," she explained, but added: "That said, we maintain our view that the general direction of travel is correct, and with greater emphasis on product design, marketing, and store environment Coach should be able to rebuild traction within its core North American market."
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