Coach first quarter sales rise on gains in North America, China

Upscale leather-goods maker Coach Inc reported higher quarterly sales on Tuesday as its own stores in North America showed increased business and there were large gains in China, marking a return to form in two markets that had shown signs of slowing earlier this year.

Coach’s shares rose 5.2 percent to $57 in premarket trading.

Sales at its stores in North America – still the company’s biggest market by far – rose 11 percent during the quarter. In China, which is a small but fast-growing market for Coach, sales at stores open a year rose by a double digit percentage. Coach has said it expects China to account for 10 percent of sales within a few years.

In recent months Western luxury brands such as Tiffany & Co and Burberry Group PLC warned about slowing growth in China, a nation many so-called “affordable luxury” companies were banking on to fuel expansion.

But in an interview, Coach Chief Executive Lew Frankfort said Chinese shoppers’ appetite for affordable prices worked in his company’s favor.

“Our price points are extremely compelling relative to the European luxury brands,” he told Reuters.

Lazard Capital Markets analyst Jennifer Davis said in a note that sales in China were “better than feared.”

In North America, Coach’s results were an improvement over the two preceding quarters, when gains were anemic. This time, comparable sales came in above Coach’s own forecasts from three months ago, when the company warned investors that shoppers wanted bargains to be compelled to buy.

Coach has also faced competition in its home market from fast-growing brands including Michael Kors and Fifth & Pacific Cos Inc’s kate spade, raising Wall Street concerns about how sustainable Coach’s strength would be.

Companywide, revenue in the first quarter, which ended Sept. 29, rose 10.6 percent to $1.16 billion, in line with Wall Street analysts’ projections, according to Thomson Reuters I/B/E/S.

Frankfort noted in a statement that the launch of its Legacy handbag collection, a line that harkens to classic styles from the 71-year-old company, had been successful.

Net income in the quarter was $221.4 million, or 77 cents per share, compared with $215 million, or 73 cents, a year earlier. That was a penny above Wall Street estimates. Profit was dented by the company’s efforts to buy its local distributors in Malaysia and Korea.

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