Coach shares rise on increasing profit; design chief plans to leave next year

NEW YORK, N.Y. – Coach Inc. reported fiscal third-quarter results Tuesday that beat Wall Street expectations as the luxury handbag maker saw sales increase in its flagship North American market, as well as overseas.

The New York company also said it’s raising its dividend by 15 cents annually to $1.35 per share.

The financial news came as Coach also announced that Reed Krakoff, its president and executive creative director, will not renew his contract when it expires in June 2014 so he can focus exclusively on his namesake brand. Coach is exploring strategic options for the Reed Krakoff brand, which may involve a sale to a group in which Krakoff would participate.

Krakoff, known for helping to revitalize Coach as a luxury brand and pushing splashy advertising to attract younger customers, has been in that job for more than 16 years. Coach said it is seeking a successor.

The news of Krakoff’s plans comes two months after Coach’s longtime CEO Lew Frankfort, who with Krakoff transformed what had been a small leather goods business into a global luxury brand, announced he will step aside next year. Victor Luis, who is head of international operations, will succeed Frankfort as CEO in January, the company announced February.

Despite big changes at the top, Frankfort told The Associated Press Tuesday that he expects the transition to be seamless. Frankfort will remain as chairman and CEO until January, then will become executive chairman.

The changes are happening as Coach is reinventing itself once again by fashioning itself as a lifestyle brand anchored in accessories.

Investors sent shares up more than 11 per cent, or $5.72, to $56.31. The stock closed Monday’s regular session at $50.59, down nearly 9 per cent since the start of the year.

As part of its efforts to branch out to other products, Coach has been building its men’s business, which is expected to double to more than $600 million this year. The company’s new footwear assortment, which launched during March in over 170 stores in North America and 60 directly-operated stores internationally, has been well-received by shoppers, Frankfort said.

“Consumers are embracing a broader expression of Coach,” Frankfort told The Associated Press.

In North America, revenue at stores open at least a year rose 1 per cent. The metric is a key gauge of a retailer’s health, because it measures growth by stripping out the impact of newly opened and closed locations. Total sales for the region rose 7 per cent to $792 million.

International sales rose 6 per cent to $382 million, or 14 per cent when stripping out the impact of foreign currency exchange rates. In China, where the company now has 118 locations, sales rose 40 per cent and sales at stores open at least a year rose at a “double-digit rate,” the company said.

In Japan, sales were even from a year ago, when adjusting for currency exchange rates.

The company said it reached an agreement to buy its partner’s 50 per cent interest in its business in the United Kingdom and Europe, with the transaction expected to close in July.

For the quarter, Coach Inc. said it earned $238.9 million, or 84 cents per share. That’s compared with $225 million, or 77 cents per share, a year ago.

Revenue rose 7 per cent to $1.19 billion.

Analysts expected a profit of 80 cents per share on sales of $1.18 billion, according to Thomson Reuters.