Coach Profit Falls as Rivals Take Sales

By Suzanne Kapner and Erin McCarthy 

Coach Inc.'s sales plunged in the first three months of the year, as U.S. shoppers took their foot traffic and dollars to Michael Kors and other rivals.

The maker of handbags and other accessories said profit fell 20% amid a steep drop in sales in North America. Sales will continue to fall through the rest of the year, the company said.

While Coach has been working to revamp its product line for fall with new designer Stuart Vevers, it was unwilling to say when sales might improve. The company is trying to expand from being a maker of accessories--mainly handbags--into a full lifestyle brand with apparel and shoes as well. Chief Executive Victor Luis said the transformation would take a number of years.

Coach shares were down 8.5% in midday trading Tuesday, extending a decline that has left them down nearly 18% so far this year.

Earnings for the fiscal third quarter fell to $190.7 million from $238.9 million a year earlier. Overall sales slid 7.4% to $1.1 billion.

The company has tried to cut back on discounts and has added higher priced products to try to improve its image, but it continues to lose market share to Michael Kors Holdings Ltd. and Kate Spade & Co.. Sales of women's handbags were particularly weak, even as the overall market for the product continued to grow, the company said.

The men's collection and international sales were a bright spot. International sales rose 14% to $441 million, excluding currency impacts. Factoring in foreign-exchange rates, international sales grew 20%.

"China results remained resilient with total sales growing over 25% and comparable store sales rising at a double-digit rate," Mr. Luis said.

Sales in North America fell 18%. Coach expects North American sales to show similar declines in its fourth quarter.

Even has Coach adds pricier products like $600 handbags, it continues to open outlet stores, which left some analysts confused about how the company is trying to position itself. Mr. Luis said the outlet channel has been showing "vibrancy." He said "the full price channel in general, especially in the U.S. market, suffering much more dramatically from traffic trends."

Write to Suzanne Kapner at [e-mail] and Erin McCarthy at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires