• Q1 earnings fall to US$96.4m
  • Sales drop 1% to $1.03bn
  • Analyst believes company has a "long way" to go on its reinvention journey 
Coach has been undertaking a multi-year transformation plan

Coach has been undertaking a multi-year transformation plan

Luxury accessories business Coach Inc has maintained its full-year outlook, despite recording a drop in first-quarter earnings and sales as a result of one-off costs.

Earnings fell to US$96.4m in the three months ended 26 September, from $119.1m a year earlier. The decline was a result of charges of $13m under its multi-year transformation plan, and $11m associated with its acquisition of Stuart Weitzman.

Gross margin narrowed to 67.7% versus 69.3% in the year ago period, while net sales dropped 1% to $1.03bn as a result of revenue declines in both its home market and internationally.

North American Coach brand sales fell 11% on a reported basis to $561m, with comparable store sales down 9.5%. International Coach brand sales slid 3% to $369m as a 2% rise in China sales offset continued weakness in Hong Kong and Macau.

Nonetheless, CEO Victor Luis, said: “We are pleased with our first-quarter performance, which was consistent with our plan and reflected continued progress on our transformation journey. Overall, our results underscore our confidence that the cumulative impact of our actions will result in a return to top line growth in FY16 and positive North American comps by the end of the year.”

For fiscal 2016, the company has reaffirmed its outlook of a low-single digit increase in revenues on a constant currency basis. Foreign currency is expected to have an approximate 200 basis point negative impact on overall revenue growth, and an 80-100 basis point impact on gross margin.

Håkon Helgesen, retail analyst at Conlumino, said that while the sales slip at Coach is something of an improvement on last fiscal's double digit declines across every quarter, it still represents a “dire” performance from a brand struggling to reinvent itself.

“Indeed, this year’s year-over-year drop comes off the back of a 10% fall in net sales in the first quarter of last year, and is the first time in five years the company has opened its fiscal with sales of under $1bn.

“Coach still has a long way to travel on its journey of reinvention but the signs of recovery should, in our view, become more tangible later in this fiscal year.”