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At Coach, Things Will Get Worse Before They Get Better

Store closures and reduced promotional activity resulted in a less than stellar third fiscal quarter for Coach, though the company remains committed to its turnaround plan.
A Coach store in New York City. Photo: Spencer Platt/Getty Images

A Coach store in New York City. Photo: Spencer Platt/Getty Images

Coach is in the midst of a promised turnaround — and while the fashion crowd has already bought into the brand's new creative direction, it will take some time for sales numbers to catch up.

In the third fiscal quarter ending March 28, revenue amounted to $929 million, down 15 percent year-over-year and lower than the $950 million the company was expected to bring in. (Sales would have been 3 percent higher were it not negatively impacted by currency changes, Coach said.) North American sales were the hardest hit, down 24 percent to $493 million for the quarter. The news sent Coach's stock price down more than 8 percent late Tuesday morning.

What's causing the continued sales decline? A number of things. One, Coach is closing a lot of underperforming full-price stores and outlets in North America — 69 this year to date. The company has also significantly reduced its promotional offers, both in its own stores and at department stores, thereby attracting less customers and hurting conversions. Whereas Coach once held three "flash sales" per week on average, this quarter it held only one invitation-only promotional event in mid-March, for example. In an earnings call, Coach CEO Victor Luis said customers have already recognized that the brand is less promotional than it once was.

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While the results were less spectacular than investors might have hoped, Luis and CFO Jane Nielsen iterated that Coach's transformation plan to "get to a place of best-in-class profitability and sustainable growth" remains unchanged. The company will continue to close underperforming stores while it opens new locations and renovates existing ones following its "modern luxury" store concept, and expects sales will continue to decline "in the low double digits" due to decreased promotional activity. On a cheerier note, the company plans to introduce more product from Creative Director Stuart Vevers, whose third New York Fashion Week presentation was met with "overwhelmingly positive reception." Coach is also slated to launch its first perfume with licensing partner Inter Parfums this fall.

Most notably on the horizon, the company's acquisition of Stuart Weitzman is expected to be completed by next week. Luis said Coach will be able to help the Weitzman brand expand internationally, while Coach will benefit from its "proven leader[ship] in fashion and fit."