UPDATE: Coach To Cut Store Openings As Profit Drops 14%

By Andria Cheng

NEW YORK (Dow Jones) -- Hurt by the economic downturn that has affected retailers across the board, upscale leather-goods seller Coach Inc. said Wednesday that its second-quarter profit fell 14% and pared back its U.S. store-opening plans.

Net income in the quarter ended Dec. 27 declined to $216.9 million, or 67 cents a share, from $252.3 million, or 69 cents a share, in the year-earlier period. Sales fell 1.8% to $960.3 million.

On average, analysts polled by FactSet Research were looking for earnings of 68 cents a share. Earlier this month, analysts lowered their estimate from an average of 75 cents a share after Coach (COH) said it would miss its previous profit forecast after a disappointing holiday season.

The New York-based company said it's not providing a forecast for the rest of the fiscal year.

The retailer also announced it is cutting back its planned number of new stores from the current run rate of 40 North American retail locations a year to about 20, while also suspending existing retail store expansions. Outside the U.S., Coach said it will continue to implement its distribution growth plans to expand in emerging markets, especially China, where it said growth remains strong.

Coach said it's also increasing its selection of products across a variety of prices to entice shoppers who are "clearly more reluctant to spend."

"The significantly depressed backdrop and barrage of poor economic news clearly impacted consumer spending," said Chief Executive Lew Frankfort in a statement.

Gross margin narrowed to 72.1% from 75.4% a year ago, hurt by more promotions at its discount factory-store outlets and the company's moves to offer products at different price levels.

Direct-to-consumer sales increased 2% to $818 million. North American comparable-store sales declined 13%. In Japan, sales rose 15% but would have dropped 1% excluding the impact of a stronger yen. China sales remained robust, the company said.

Indirect sales fell 19% to $143 million, hurt by reduced shipments to U.S. department stores.

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