Luxury handbag maker Coach is expected to post its first quarterly same-store sales growth in North America in more than three years as its push to turn around the business gains traction. The 75-year-old company has renovated stores in the past two years, bought shoe maker Stuart Weitzman and hired well-known fashion designers to boost sales.
More importantly, the company has worked to regain its cachet - after its bags lost their premium status due to an expansion spree that made them too ubiquitous. Coach, scheduled to report fourth-quarter results on Tuesday, has since cut back on promotions and stocked fewer products at department stores.
The strategy seems to be working. "Coach has repositioned its brand to be more premium, moving away from excessive discounting and promotions to selling more at full price," Neil Saunders, chief executive of research firm Conlumino, told Reuters. "This caused challenges initially, but with new collections, consumers are starting to look again and more of them are now buying in to Coach at full price."
The company is expected to report a 1.8 percent increase in North America comparable-store sales for the April-June period, according to research firm Consensus Metrix, versus a 19 percent decline a year earlier.
Rival Michael Kors, however, is expected to report a 4.7 percent fall in same-store sales for the April-June period, its fifth decline in six quarters. Kors, scheduled to report first-quarter results on Wednesday, has been struggling with weak demand at department stores, such as Nordstrom and Macy's, which are offering big discounts to attract more shoppers.
In response, Kors has lowered the amount of inventory distributed to retailers and bought Michael Kors, its exclusive licensee in China and some other regions in Asia, to increase its direct exposure to growing Asian markets.
But the turnaround is expected to take time. The company's strategy of reducing sales through third-party retailers is expected to pull down sales in the April-June quarter, marking its first drop since going public in 2011. The key difference between Coach and its rivals is the timing, Nomura analyst Simeon Siegel said. "Coach is about to break through the turn around, Kors is essentially starting it," Siegel said.
Kate Spade & Co, the smallest but the fastest growing among the top three listed U.S. handbag makers, disappointed with its results last week. Second-quarter same-store sales growth at the company, known for its quirky and colorful satchels and totes, came in well below analysts' estimates, sending its shares down more than 20 percent.
UPDATE (AUGUST 9, 2016): Coach'S quarterly revenue narrowly missed analysts' estimates as the handbag maker cut back on discounting and tightened supply to department stores in an attempt to regain its premium brand status.
Sales rose 2 percent at North America stores open at least a year, the first quarterly rise in over three years, mainly due to higher online sales. Analysts on average had expected a 1.8 percent rise, according to Consensus Metrix."While the sales uplifts may seem somewhat anemic, it is important to note that they are being delivered against the backdrop of a falling number of doors through which Coach sells," said Neil Saunders, the chief executive of research firm Conlumino."While disruptive, this corrective action is clearly delivering."