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Coach Comeback Continues, But It’s Fragile

August 15, 2017, 12:29 PM UTC

Coach’s (COH) years-long efforts to rehabilitate its upscale aura continued to pay off as the handbag maker reported its a fifth straight quarter of rising comparable sales in North America for its namesake brand.

However, the company’s stock fell over 7% in pre-market trading, as the company’s forecasts for the current fiscal year fell short of expectations.

The New York-based company has taken steps such as cutting back drastically on promotions, getting out of dozens of wilting department stores, closing many of itself stores, and establishing itself as a ‘fashion-forward’ company in the three years since Victor Luis launched his turnaround, as detailed in a recent feature by Fortune.

Read: Coach Thinks Outside the Bag

Coach reported a net profit for the three months to July that was nearly double the year-earlier number. Net income rose to $151.7 million, or 53 cents per share, from $81.5 million, or 29 cents per share, a year ago. The company’s total net sales fell to $1.13 billion from $1.15 billion because of fewer sales events and its exit from many department stores.

“Three years ago we laid out an ambitious plan to transform the Coach brand, with a goal of increasing relevancy and improving consumer perceptions,” Luis said in a statement. “During this time, we’ve done just that, by making the necessary and significant investments across all aspects of the Coach brand and business.”

Read: Coach Buying Kate Spade in $2.4 Billion Deal

The company recently closed its acquisition of Kate Spade, a move it made to reduce its dependency on its namesake brand. The company also owns the upscale Stuart Weitzman brand of footwear.

Coach said it expects Kate Spade to add some $1.2 billion to group sales in the fiscal year that runs through July 1, 2018. It expects group sales to hit $5.8 to $5.9 billion in fiscal 2018.

But that’s some way short of the $6.04 billion that Wall Street had been hoping for. Likewise, it predicted per share earnings for fiscal 2018 of $2.35-$2.40, compared to prior expectations of around $2.50.

Coach, which had lost a large part of its market share to Michael Kors (KORS) a few years ago, saw the end of the handbag boom coming earlier than its rival. Kors is now setting about taking similar steps to repair its own damaged brand.