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Coach to Close 70 Stores in Turnaround Effort

Luxury leather goods retailer Coach, Inc. is looking to “reinvigorate” and “transform” its business, but at present, its outlook for business in fiscal 2015 is bleak.

Coach told investors and analysts Thursday that it would close 70 underperforming stores over the next year, and gave a disappointing revenue forecast for the same period.

“After 12 years of growth, we are at a crossroads, the competitive landscape has shifted and we have not responded successfully,” CEO Victor Luis said.

The retailer announced that it was expecting a low double-digit decline in revenues for the next fiscal year, and investors were less than pleased with the news. The company’s shares fell $3.81, or 9.7%, to $35.38 in afternoon trading Thursday, the lowest point in more than three years. Sales at North American stores open at least one year are expected to see percentage declines in the high teens.

Coach has been battling slumping sales amid stiff competition from brands like Michael Kors and Kate Spade, which have managed to tap into trends more effectively, and Luis acknowledged the need to transform the brand from affordable luxury to modern luxury.

Sales at North American stores during the quarter ended March 29 plunged 18 percent to $648 million and Coach said sales could dip just as much this quarter.

In an April earnings statement, Luis said, “During the third quarter, total sales declined as weakness in our North American women’s bag and accessories business continued to offset strong growth in men’s, footwear, and robust sales gains in Asian markets and Europe.”

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As part of the company’s turnaround effort, Luis said Coach will implement a number of major initiatives over the next 12-18 months including closing the underperforming stores and rebuilding at flagships in its top 12 North American markets.

For outlet stores, the new strategy will be to leverage seasonal product flow and increase the relevance of its factory product. The retailer will close two of its existing outlet stores and combine 13 men’s stores with existing women’s locations, and outlet items will be more in line with the retailer’s full-price product by moving away from its signature logo designs in favor more leather goods.

Luis said Coach also intends to create a better branded presence in department stores by moving to more open, accessible fully-branded displays and making Coach “more shoppable.”

The retailer announced earlier this month that it would begin offering sales on its goods twice a year at North American full-price stores, a break from its previous no discounting method, in another effort to combat slipping sales and increasing competition.

Randal Konik, an analyst at Jefferies said the bottom line is that the turnaround is going to take a long time. “Competition is fiercer than ever, which will continue to pressure same-store sales, margins and earnings until new initiatives take hold,” he said.