Handbag wars revisited: Coach back to profits growth

Coach SS16

Coach SS16

Years ago I used to headline every Coach results story with words like “unstoppable” or “powering ahead”. But then came the inevitable reversal when profits fell off a cliff and it seemed the whole world was buying Michael Kors bags instead.

So it’s good news that, after a bruising period, Coach appears to be back on a roll with its first quarterly profits growth in three years. And what was responsible? Strong demand in China (you know, the market that other luxury bag makers are scratching their heads over at the moment), as well as Japan and Europe. Oh, and a new strategy designed to boost margins and make the brand so much more desirable again.

It seems the creative cool of Stuart Vevers, store renovations, cutting back on outlet product and reining-in promotions have all combined to make Coach bags ultra-covetable once more.

So is the transformation done and dusted? Not at all. In fact, Coach CEO Victor Luis said that in future the company will ensure department stores don’t chuck everything labelled Coach into their store-wide sales events and it may also even cut back on the number of department stores able to carry its products.

It also wants to expand through acquisitions following its purchase of Stuart Weitzman early last year and the subsequent sales success story for the brand. Currently buying the brand’s Canadian distributor, the company said yesterday: “We see significant potential for [Weitzman] longer term and are delighted with its integration, which speaks to our ability to operate as a multi-brand company.”

But the news yesterday wasn’t good for everyone with the firm moving to simplify its overall structure. That means it’s cutting 2% of its workforce (300 mainly-corporate roles). Its COO Gebhard Rainer and global marketing president David Duplantis are among those to be axed.

Do the math

Ok, let’s look at the numbers. We’re not quite back at a point where I can start calling Coach “unstoppable” again. In fact, North American comp sales in Q3 to March 26 were flat, although after three years of falls that might be called great news. That’s especially so when you take into account what the company said were “volatile tourist spending flows, as well as macroeconomic and promotional headwinds.”

Currency-neutral sales for the Coach brand rose 2% in mainland China and in double-digits in Europe while Japan continued its recovery (and rediscovered its love affair with the brand), turning in a 7% rise. “E-commerce was an overall contributor as well,” Coach said without giving any figures.

Total sales rose 11.2% to $1.03bn. But net profit was the killer headline – it rose more than 25% to $112.5m/40 cents a share. Wow!

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