- The Washington Times - Tuesday, April 21, 2009

NEW YORK (AP) - Coach Inc., which makes luxury handbags and accessories, said Tuesday that profit fell 29 percent in its fiscal third quarter as sales were nearly flat in the recession. The company indicated, however, that weak traffic has stabilized.

That news as well as the initiation of a new cash dividend sent Coach shares up more than 15 percent.

Coach sales have suffered as the luxury market has weakened. Following one of the weakest holiday seasons in decades, the company announced plans to offer more handbags at lower prices and has been working to cut costs.

But sales have now stabilized at levels seen before the holiday season, both at full-price stores and off-price factory stores, said Chairman and Chief Executive Lew Frankfort. Sales in stores open at least one year, a retail metric known as same-store sales, fell 4.2 percent. By contrast, the previous quarter’s same-store sales, which included the holidays, fell more than 13 percent.

“The biggest difference on the holiday quarter trend was traffic, which improved from second-quarter (same-store sales) levels,” he said.

Lazard Capital Markets analyst Todd Slater, who rates the company’s shares a “buy,” said strength in the factory stores largely offset weakness at the full-price retail stores. He believes that same-store sales at the factory outlet stores rose more than 20 percent, he wrote in a client note.

Coach’s profit for the three months ended March 28 fell to $114.9 million, or 36 cents per share, from $162.4 million, or 46 cents per share last year. Excluding charges related to its cost-cutting plan, profit was 38 cents per share _ 2 cents better than analysts expected.

Revenue edged down less than 1 percent to $739.9 million from $744.5 million. That was better than the $711.4 million analysts predicted.

During the quarter, Coach cut 150 U.S. corporate staff, closed four retail stores and closed a sample-making plant in Italy. The cost-cutting plan is in addition to the company’s previous actions to eliminate merit-based salary increases and freeze hiring except in critical areas. Coach expects to save $50 million before taxes with the cuts during the next fiscal year.

Coach previously said it is lowering prices 10 percent to 15 percent over the next fiscal year, which begins in June. As part of that it plans to offer half of its handbags _ about 70 different types _ at $200 to $300. That compares to 30 percent in that price range now.

At the end of June it will launch a collection of bags under the “Poppy” name that is the first line designed with these price points in mind.

“Our goal is to provide our consumer with more choices at prices she’s willing to spend or is able to afford,” Frankfort said in a conference call with analysts.

New York-based Coach said it will begin quarterly dividend payments of 7.5 cents per share on June 29 to shareholders of record as of June 8. The new dividend “reflects our financial strength and our confidence in Coach’s business outlook,” Frankfort said.

Coach shares rose $2.77 to $21 in morning trading. They have traded between $11.41 and $37.64 during the past 52 weeks.

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