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Coach Shares Soar 8% as Pricier Handbags Catch On

May 02, 2017

Coach's (coh) painful moves to re-establish itself as a high end-brand are paying off.

The leather goods maker said on Tuesday that comparable sales at its North American stores, the biggest chunk of its business, rose 3% last quarter, their fourth straight increase after what had been two years of precipitous declines. More notably, some 55% of the handbags it did sell were $400 or more, up from 40% a year earlier.

The ability to command higher prices is a hard fought win for Coach, which only a few years ago fell into the same retail discount trap that has plagued countless brands and stores. But in 2014, Coach CEO Victor Luis announced a series of radical steps aimed at restoring the now 76-year-old company's luster. That included closing dozens of stores, exiting hundreds of failing department stores and cutting back on online sales events at its factor outlet stores.

For two years, investors dealt with dizzying sales declines, a large extent of which were voluntary. But as Coach reined in its prestige-sapping ubiquity, hired a hot fashion designer in Stuart Vevers and ramped up the caliber of its bags, as exemplified by its pricey but coveted Rogue line, it has been able to command ever higher prices, and more crucially, set itself apart from rivals like Michael Kors (kors) and Kate Spade (kate).

Sales to department stores fell 40% as it continued its exit for 250 such locations, primarily weak Macy's (m) and Belk stores and their endless rows of discounting signage. At the same time, the return of an upscale aura has helped Coach appear at luxury stores like Neiman Marcus. A big move in Coach's efforts to go higher end included a 2015 purchase of the Stuart Weitzman brand.

"While the retail environment remains uncertain, our strategic vision for our brands and our company remains clear," Luis said in a statment. "The traction we’ve achieved to date on our transformation plan and the success of our integration of Stuart Weitzman give us continued confidence in our direction."

Coach said net sales in the third quarter ended April 31 fell 3.7 percent to $995.2 million, due largely to the department store exits and a cutback in discounting. Excluding certain items, the company earned 46 cents per share in the third quarter in the third quarter ended April 1, beating analysts' estimate of 44 cents per share. Net income rose 8.6 percent to $122.2 million, or 43 cents per share.

The company last month announces a change to its organization chart, saying it intended to become a multibrand company and make acquisitions. Some names that have floated in news reports include Kate Spade and Jimmy Choo. But company executives gave no updates on any potential acquisitions on a conference call on Tuesday.

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