New York-based handbag maker Coach has released its quarterly earnings, and China sales were weaker than expected.
Coach has been banking on better sales from Asia and Europe to offset weakness in the US.
Accounting for 11 percent of the company’s total revenues last fiscal year, China sales rose only 10 percent this quarter, not nearly enough to offset the sales declines of 19 percent and 12 percent, respectively, in North America and Japan. Last year, sales in China jumped 25 percent.
“There will likely be continued volatility in the near-term due to both macro issues and the geopolitical events which are impacting trends in China and some key tourist markets, notably Hong Kong and Southeast Asia,” Chief Executive Victor Luis told Reuters.
Other luxury brands such as Burberry and LVMH had experienced a slowdown in China due to the government’s luxury crackdown and changing consumption patterns. Coach’s problems were compounded by the shutdown of two of its stores in Hong Kong during the pro-democracy protests.
Overall, Coach’s net income fell 45.3 percent to $119.1 million for the quarter. Net sales fell 10 percent to $1.04 billion.
However, according to The Wall Street Journal, there are some reasons for optimism.
The new collections from Coach’s executive creative director, Stuart Vevers, were performing up to expectations even though they haven’t been in stores long enough to have a large impact on earnings.
Furthermore, Coach’s move to appeal to higher-end consumers seems to be working, as handbags priced over $400 made up 30 percent of sales, up from 21 percent of sales last year. The strategy has been a double-edged sword, however, as the new bags have cut into the company’s gross profit margin, which fell to 68.9 percent this quarter from 71.8 percent a year ago. Sourcing the materials for the new handbags, which include more leather than the company’s fabric logo bags, is primarily responsible for the thinner margins.
image source: coach