Coach sales up despite leather cost pressures
US leathergoods maker, Coach, reported a better-than-expected quarterly profit as US luxury spending increased over the holiday season, but the company faces pressure from rising leather costs, according to chief executive Lew Frankfort.
Mr Frankfort told Reuters that Coach is “feeling inflationary pressures” from rising labour costs overseas and leather prices. Coach’s gross margin rate, which gauges how profitable its products are, held steady at 72.4%.
Frankfort said Coach was diversifying where it makes its products and experimenting with different types of materials to contend with those rising costs.
He added that consumers were still being cautious, despite the improving economy.
“The consumer is gaining confidence that economy is recovering though they are being judicious,” Frankfort said.
Coach has positioned itself in the “affordable luxury” segment in the past two years as shoppers have cut back on the most expensive items. It has lowered average prices on its handbags about 10% to bolster demand during the economic downturn.
Sales rose 18.7 percent to $1.26 billion, fuelled by a 12.6% increase at stores open at least a year in North America, which account for 70% of the company’s business. The company reported net income of $303.4 million for the second quarter that ended January 1, 2011, up 26% from $240.9 million a year earlier.
The company had 347 retail stores and 129 factory outlets at the end of the quarter in North America. In Japan, Coach had a total to 171 retail locations and in China, 52.
