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Coach sales in N. America plummet as it loses more ground to rivals

A man walks past a Coach store on Madison Avenue in New York, January 23, 2013. REUTERS/Carlo Allegri
A man walks past a Coach store on Madison Avenue in New York, January 23, 2013. REUTERS/Carlo Allegri

By Phil Wahba

(Reuters) - Coach Inc's sales in North America during the key holiday quarter fell more than the handbag maker had forecast as new rivals continued to eat away at its market lead and fewer shoppers came into its stores.

The New York company, known for its Poppy handbags, on Wednesday reported a 13.6 percent drop in comparable-store sales in North America, the third straight quarter of decline in a market that accounts for 70 percent of its revenue.

Shares were down 7.7 percent at the open at $48.50.

Coach has been losing market share in recent years in the U.S. handbag market to fast-growing rivals such as Michael Kors Holdings Ltd , kate spade and Tory Burch.

But it has also had to deal with major changes in its top management ranks, including a new chief executive and creative director.

The company is trying to offer more footwear and fashion to become a lifestyle brand, but products designed under the supervision of the new creative director, Stuart Vevers, will not be in stores for a few months, leaving Coach with stale merchandise, Edward Jones analyst Brian Yarbrough said.

"These guys are definitely losing share. Fashionwise, they're missing the beat," Yarbrough said. Despite strong growth in China, where sales rose 25 percent during the quarter, Coach must fix its business at home, he said.

"North America is their bread and butter. They have to get that going."

Coach will be presenting a collection at New York Fashion Week next month for the first time.

Between 2011 and 2012, Coach's share of the U.S. handbag market fell to 17.5 percent from 19 percent, according to Euromonitor International. Michael Kors' market share rose to 7 percent from 4.5 percent.

Coach warned in October that it expected same-store sales in North America to fall by the "high single digits" in percentage terms through the end of its fiscal year ending in June.

Coach said fewer shoppers came into its stores. Its gross profit margin fell 3 percentage points to 69.2 percent of sales, suggesting it had to discount prices more than expected at its factory outlet stores, which some analysts estimate make up a least 50 percent of sales.

The 2013 holiday season was the most discount-driven period since the recession, leading many large U.S. retailers to slash profit forecasts earlier this month.

North American sales fell 9 percent to $983 million in the second quarter ended December 28.

Coach's overall revenue fell 5.6 percent to $1.42 billion, in the quarter, while net income dropped to $297.4 million, or $1.06 per share, from $352.8 million, or $1.23 per share, a year earlier.

Analysts on average had expected earnings of $1.11 per share on revenue of $1.48 billion, according to Thomson Reuters

I/B/E/S.

(Reporting by Aditi Shrivastava and Phil Wahba; Editing by Ted Kerr and Andrea Ricci)

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