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Coach's Sales Continue to Plummet, But the Relative Success of Its New Stores Offers Hope

Coach CEO Victor Luis says its revamped stores are significantly outperforming the rest.
Coach's spring 2015 campaign. Photo: Steven Meisel/Coach

Coach's spring 2015 campaign. Photo: Steven Meisel/Coach

Taken in a vacuum, Coach's sales numbers don't look too hot right now. The American retailer reported Thursday morning that in the second quarter, which ended Dec. 27, sales dropped 14 percent to $1.22 billion. North American sales dropped 20 percent, with same-store sales down 22 percent. In sum, the company's income shrank from $297 million during the same period in 2013 to $183 million.

But investors are okay with it. In fact, shares shot up 8.6 percent following the news this morning and settled at nearly 7 percent by 9 a.m. According to Bloomberg, Coach's comparable sales results beat investors' expectation of a 24 percent drop

In part, you can chalk it up to growing pains. Or turnaround pains, rather. As Coach works to reposition itself itself as a "modern luxury" brand, it's been cutting way down on promotional activity. The retailer now operates on a semi-annual sale schedule, the most recent of which ran from mid-December to January 21, and it only held one invitation-only event around Black Friday. Considering that other retailers have running in the opposite direction and extending their holiday sales, it makes sense that this would put some pressure on its traffic. But it's the price Coach has decided it has to pay for a more upscale image.

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Here's the good news: a glossier finish does seem to be working for the brand. According to CEO Victor Luis, stores remodeled in Coach's new design concept have been significantly outperforming old locations.

"[That's] the most compelling evidence to date that we’re moving in the right direction," Luis said on the company's earnings call Thursday morning.

By the holiday period, Coach had opened 20 stores under its new design concept globally, and the plan is to open another 50 to 60 and renovate 150 existing stores throughout 2015. The company has closed 53 North American locations so far this fiscal year and is on track to shutter 70 by year's end.

The team expects that sales in the second half of the year could be more challenging given the "planned and even sharper decrease" in promotional activity in the spring. But if Coach can eventually turn its numbers into positive growth, it's going to be worth it.