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Coach Q4 same store sales push stock to three-month low

Published: 15:50 30 Jul 2013 EDT

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Coach (NYSE:COH) sunk to lows it has not seen since late April after the company's fiscal fourth quarter sales results missed analyst expectations, with its net profit also brought down by one time expenses. 

The luxury accessories retailer reported net income of $221 million, or 78 cents per share, for the three months that ended June 29, compared to $251.4 million, or 86 cents per share. 

Excluding $53 million in special items, including corporate restructuring expenses and impairment charges as well as inventory write downs, the company recorded a net profit of $254 million, or 89 cents per share.  Taken together, Coach said it expects to capture over $50 million in annual savings related to these measures, which it anticipates will drive efficiencies and fund key initiatives. 

Net sales came in at $1.22 billion for the quarter, up 6 per cent from the $1.16 billion a year ago. On a constant currency basis, sales rose 9 per cent, the company said. Analysts polled by Thomson Reuters had most recently forecast per-share earnings of 89 cents on revenue of $1.24 billion.

Total North American sales increased 6 per cent to $825 million, while North American direct sales rose 5 per cent for the quarter with comparable store sales down 1.7 per cent. That was the region’s only second such drop in the past 15 quarters, according to Retail Metrics.

Coach said sales in North American department stores were slightly above prior year, while shipments into this channel also rose.

Gross margin was flat at 72.6 per cent. The company said that unusual items in the quarter increased its selling, general and admin expenses by $48 million, hurting its earnings by $33 million after tax, or 11 cents per share. 

“We generated strong international results, leveraged the Men’s opportunity globally, strengthened our digital capabilities and drove excellent initial results in the re-launch of footwear. While we maintained our outstanding profitability levels, we were not satisfied with our performance in the Women’s handbag and accessories category in North America," said chairman and CEO Lew Frankfort. 

The company bought back and retired more than 7 million shares of its common stock during fiscal 2013, for a total of $400 million. At the end of the year, it had about $1.4 billion remaining under its current share buyback program.

Separately, Coach also announced the departures of two top-level executives: Mike Tucci, president of Coach's North American group, and Jerry Stritzke, president and chief operating officer. In addition, the company announced the sale of its Reed Krakoff business to a group led by Krakoff, Coach's long-time executive creative director who said he was leaving the brand to focus on his own namesake label. The sale is anticipated to close in the first quarter of fiscal 2014, with Coach saying the transaction would not have a material impact on those results. 

Shares of the company fell 7.8 per cent to trade at $53.35 within minutes of market close, the lowest level since April 22.

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