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Wednesday, Jan 23, 2013 2:00 PM UTC

Coach shares plunge on tough holiday quarter

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Topics: From the Wires,

NEW YORK (AP) — Shares of Coach Inc. plunged in premarket trading Wednesday after the luxury handbag seller said a challenging economy and heavy price-cutting by competitors weighed on its fiscal second-quarter results.

The muted holiday results offer more evidence that the shopping season was tough as shoppers grappled with the economic uncertainty brought on by the European recession and the U.S. “fiscal cliff” negotiations.

The quarter is also evidence of growing competition from rivals like Michael Kors, whose trendy designs are attracting loyal followers.

The New York-based company says its net income was $352.7 million, or $1.23 per share, in the quarter ended Dec. 29. That compares with $347.5 million, or $1.18 per share, a year ago.

Net sales rose 4 percent to $1.50 billion.

The results were short of expectations for earnings of $1.28 per share on revenue of $1.6 billion.

Shares of Coach fell nearly 17 percent to $50.55 in premarket trading. That’s near their 52-week low of $48.24.

“During the holiday quarter, we drove modest growth and continued to gain overall traction on our key strategies,” Chairman and CEO Lew Frankfort said in a statement. He noted that while the company posted strong international results, helped by a strong men’s business, the company was disappointed by its performance in North America, where the holiday season proved “challenging.”

“Most broadly, the consumer was impacted by a muted macroeconomic environment, while in the women’s handbag category competition intensified and promotional activity increased,” he added. He noted that despite a heavy promotional environment, Coach didn’t succumb to the pressure and stuck with its pricing strategy to protect the brand.

Total North America sales rose 1 percent to $1.08 billion from $1.07 billion in the year-ago period. North American direct sales rose 2 percent for the quarter. Revenue at stores opened at least a year fell 2 percent. The measure is considered a key indicator of a retailer’s health.

International sales rose 12 percent to $411 million from $368 million a year ago. China results remained strong, with total sales rising 40 percent and revenue at stores opened at least a year rising at a double-digit rate. In Japan, sales declined 2 percent on a constant currency basis.

Frankfort said China was on course to generate at least $400 million in sales this year. He also said that the company’s men’s business is on track to generate sales of more than $600 million globally for the current year, up 50 percent from a year ago.

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