Coach (COH) started its life in the discount-heavy U.S. department store channel but will now toss nostalgia aside as it tries to elevate the perception of its brand among consumers.
The handbag and accessory maker announced a bold decision on Tuesday to shutter about 25% of its North American department store locations -- otherwise known as wholesale locations. Most of the locations tend to be low volume, according to the company, and the closings will be spread out in terms of geography. Instead, Coach will focus on the best-performing sites and avoid the stores that put its bags on sale or clearance at huge discounts.
Coach products are sold in over 1,000 wholesale locations in the U.S. and Canada. Its most significant U.S. wholesale customers are Macy's (M) (including Bloomingdale's), Dillard's (DDS) , Nordstrom (JWN) , Lord & Taylor, The Bay,Bon Ton (BONT) , Belk and Von Maur.
"These moves are really meant to reduce the smallest doors that we have, and to ensure in the doors that we do remain that our brand is going to be first and foremost managed effectively and not have our pricing be overly promotional, which impacts not only consumer perception about the brand but also creates confusion across the various channels," Coach CEO Victor Luis told TheStreet in the below interview.
Luis, who has been overseeing an impressive reboot of the Coach brand since taking the CEO reins in 2014, added, "Overall, we believe in the department store channel and believe it's a great place for consumers to come in and cross shop -- but, we believe most in protecting and focusing our investments in the long-term health of the brand."
Coach's move comes after a quarter in which its sales trends at departments stores and within its own retail stores were night and day.
Sales at North American department stores for Coach declined by a mid-teens percentage in the quarter. Meanwhile, same-store sales at its U.S. retail stores rose 2%, marking the first time in 12 quarters the company has seen growth in this key metric. Excluding the impact of online sales, U.S. same-store sales rose 1%.
Net sales rose 15% from the prior year to $1.15 billion, relatively in line with Wall Street forecasts. Earnings excluding one-time items increased 47% year over year to 45 cents a share. Analysts expected 41 cents a share.
Shares of Coach fell as much as 3% in early trading on Tuesday as investors fretted about the company's full year forecast. They are now 1.3% at around $41. Coach forecast sales growth of low single digits for its new fiscal year and a low double-digit percentage gain in earnings per share.
By: Brian Sozzi (The Street).
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