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Coach Inc sees weakness in North America; two more executives leave

By Phil Wahba

(Reuters) - Coach Inc on Tuesday again reported soft sales at its North American stores as it continued to face tough competition for handbag shoppers, and the leather goods maker announced the departures of two more executives.

Shares of New York-based Coach, which is known for its Poppy handbags, fell 6.2 percent to $54.25 in premarket trading.

Overall revenue rose 5.8 percent to $1.22 billion in the fourth quarter ended June 29, helped by gains it its men's merchandise and in China.

But sales at its own stores open at least a year fell 1.7 percent in North America, where Coach is competing with fast-growing brands like Michael Kors Holdings Ltd and Fifth & Pacific Cos Inc's kate spade.

Coach's decline stemmed from weak sales in its bread-and-butter business - women's handbags. This was the second drop in North American comparable sales in the last three quarters.

"They have lost some market share, no question about it, especially among young, fashion-conscious shoppers," Edward Jones analyst Brian Yarbrough told Reuters.

Mike Tucci, the head of Coach's North America business is stepping down, as is Jerry Stritzke, its operations chief. Analysts had expected this, given that the two had been believed to be candidates to succeed longtime CEO Lew Frankfurt.

Victor Luis, who oversaw Coach's international expansion, takes the reins from Frankfurt in January.

Still, those departures, along with the previously announced exit of Reed Krakoff, the creative director behind Coach's torrid growth of recent years, come as the company is trying to reignite sales in North America by becoming a "head-to-toe" lifestyle brand offering more footwear and clothing.

"We agree there's a lot going on," Frankfurt said in an interview. But he disputed the notion all these changes were disruptive. "We have a seasoned group of Coach veterans taking on these roles."

Despite the weak North American results, there were some positive signs. Gross profit margin rose slightly, suggesting Coach has not had to discount much.

Francine Della Badia, who currently heads North America merchandising and is succeeding Tucci, said sales of handbags priced at $400 or more had improved. Earlier this year, Coach had been struggling to sell those pricier products.

Sales at department stores also ticked up.

Excluding the effect of currency fluctuations, international sales rose 17 percent, helped by a 35 percent jump in China.

Net income for the quarter fell to $221.3 million, or 78 cents per share, from $251.4 million, or 86 cents per share, a year earlier. Excluding some one-time items, Coach earned 89 cents per share, in line with Wall Street forecasts.

(Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn)

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