Coach‘s quarterly revenue narrowly missed analysts’ estimates as the handbag maker cut back on discounting and tightened supply to department stores in an attempt to regain its premium brand status.
The company’s shares, which have risen by more than a quarter this year, were down 2% in volatile premarket trading on Tuesday.
Coach, a 75-year-old brand once associated with high-end luxury and top celebrities, has been facing intense competition from newer entrants such as Michael Kors Holdings Inc and Kate Spade & Co.
To revive demand, Coach has renovated its outlets and taken steps to refresh its designs, including hiring well-known fashion designer Stuart Vevers.
Coach has also slashed the number of department stores it sells to, which reduced net sales at these stores by high single-digit percent in the fourth quarter, the company said.
Sales rose 2% at North America stores open at least a year, the first quarterly rise in over three years, mainly due to higher online sales. Analysts on average had expected a 1.8% rise, according to Consensus Metrix.
“While the sales uplifts may seem somewhat anemic, it is important to note that they are being delivered against the backdrop of a falling number of doors through which Coach sells,” said Neil Saunders, the chief executive of research firm Conlumino.
“While disruptive, this corrective action is clearly delivering.”
Coach‘s unit Stuart Weitzman Holdings LLC said on Tuesday that it hired well-known accessories designer Giovanni Morelli as creative director.
Morelli, who will succeed the brand’s founder Stuart Weitzman on May 5 next year, has earlier worked with major fashion brands including Prada, Burberry, Marc Jacobs and Chloe.
Coach‘s net sales jumped 15% to $1.15 billion in the quarter ended July 2, but missed the average analyst estimate of $1.17 billion, according to Thomson Reuters I/B/E/S.
The company said it expected sales to rise in low to mid single-digit percent in fiscal 2017.
Net income rose nearly seven-fold to $81.5 million, or 29 cents per share. Excluding items, Coach earned 45 cents per share, topping the average estimate of 41 cents.
Coach shares were trading at $40.50 before the bell. Up to Monday’s close, the stock had risen nearly 10% since the end of June.