China fires, Hong Kong fizzles for Coach Asia

Coach Asia has reported a strong rise in Mainland China sales in the last quarter – which was eroded by a decline in Hong Kong and Macau.

The rebounding US fashion retailer says international sales rose 5 per cent in the three months to March 27 to US$448 million and by 7 per cent on a constant currency basis.

“Total China sales rose 2 per cent in constant currency and declined 2 per cent in dollars with double-digit growth and positive comparable store sales on the Mainland offset in part by continued weakness in Hong Kong and Macau,” the company said in its earnings statement overnight.

Hong Kong’s subdued luxury market and high currency value significantly ate into the Greater China figures.

In Japan, sales rose 7 per cent in constant currency, despite a decrease in square footage, while dollar sales rose 8 per cent, reflecting the stronger yen.

“Sales for the remaining directly operated businesses in Asia posted solid growth in constant currency but rose slightly in dollars,” the company reported.

Coach’s total sales were $1.03 billion for the third quarter, compared with $929 million in the same period of last year, an increase of 11 per cent. On a constant currency basis, total sales increased 13 per cent. Gross profit totaled $713 million versus $665 million a year ago, up 7 per cent, while gross margin was 69 per cent versus 71.6 per cent.

Neil Saunders, CEO of Conlumino, said while Coach’s sales uplifts were modest when compared to prior year declines of 24 per cent in North America and 3 per cent in international markets, they added to the sense that a long promised recovery of the brand is starting to materialise.

He said the Stuart Weitzman acquisition continues to add value to Coach’s top line, despite fairly weak margins. “To an extent this, along with the strong dollar, has under minded progress made in rebuilding margins for the core Coach brand.

“While Coach has done much to rebuild its brand there is still further to go within North America before it sheds its image of being a ubiquitous product focused on discounting. The recent heritage campaign and the reduced promotional stance are helping to shift perceptions, and as such the direction of travel is correct,” observed Saunders.

“With greater emphasis on product design, marketing, and store environment Coach should be able to rebuild traction within its core North American market over the course of the next quarter.”

Coach CEO Victor Luis  said the company’s performance was in line with expectations and reflected “the consistent execution of the transformation initiatives put into place nearly two years ago, in spite of volatile tourist spending flows, as well as macroeconomic and promotional headwinds”.

“We are delighted with how our plan for the Coach brand continues to unfold and is driving improvement across our financial metrics. We are on track to return to positive comps in North America in the fourth quarter and to achieve an inflection in our profitability.”

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