Coach Bags Another Quarter

The earnings figures exclude the results of Coach's corporate accounts business, which the company wound up during the quarter "in order to better control the location and image of the brand where Coach product is sold."

"Simply put," Frankfort said during a conference call with analysts, "our goal is to curtail the diversion of our products into non-image-enhancing environments, such as the warehouse retailers and the discount chains."

Frankfort told analysts the problems with the corporate accounts business had become a brand integrity issue, with Coach products turning up for sale at such bulk discount retailers as Costco.

Looking ahead, the company expects to make $1.67 a share for the year on sales of $2.6 billion, compared with Wall Street's expectation of $1.72 a share. Coach said it believes the Wall Street consensus includes a dime a share from the discontinued corporate accounts business, putting the company's target a nickel above analysts' expectations. For 2008, Coach sees a profit of $2.02 a share on sales of $3.1 billion.

Brian Sozzi, equity research analyst at Wall Street Strategies, said the drop in the company's stock was due in part to confusion over the guidance. "We're looking at a stock that has been up substantially over the past 12 months," he said. "If you drill down deeper, you still have a brand that's been growing by leaps and bounds."

During the quarter, the company opened seven U.S. retail stores, bringing the total to 244 retail stores and 90 factory stores as of March 3. Frankfort said the company was looking to add 40 new stores a year in North America over the next few years for a total of about 500 stores.