Coach Quarterly Profits Take Hit

Add Coach(COH) to the list of casualties in the dwindling apparel luxury market. The handbag and accessories maker posted a 29% drop in its fiscal third-quarter earnings, as consumers traded down on discretionary items and the company implemented a cost-saving plan.

Profit for the three months that ended March 28 fell to $114.9 million, or 36 cents per share, from $162.4 million, or 46 cents per share last year. Excluding charges related to its cost-cutting plan, profit was 38 cents per share. Analysts polled by Thomson Reuters expected a profit of 36 cents per share on revenue of $711.4 million.

The company also said it will begin paying a cash dividend of 30 cents annually.

Revenue edged down less than 1% to $739.9 million from $744.5 million a year earlier.

The cost-cutting initiative is in addition to the company's previous actions to eliminate merit-based salary increases and to freeze hiring except for certain areas deemed critical. Coach expects to save $50 million before taxes with the cuts during the next fiscal year.

During the quarter, Coach cut 150 U.S. corporate staff, closed four retail stores and closed a sample-making plant in Italy.

"The steps that we're taking to reduce our expense structure will help position Coach to enhance our profitability," said Lew Frankfort, chairman and chief executive.

Gross margin fell to 71% from 75% due to deeper factory store promotions and lower price points, which the company began rolling out in the prior quarter.

Direct-to-consumer sales rose 9 percent to $634 million as sales in North American stores open at least one year, fell 4.2 percent.