Wedbush: Coach Handbag Sales 'Sluggish,' Michael Kors And Kate Sales 'Strong'

Morry Brown of Wedbush commented in a note over the weekend that Coach Inc (NYSE: COH) handbags are seeing weak sales, while Michael Kors Holdings Ltd (NYSE: KORS) and Kate Spade & Co (NYSE: KATE) handbags are "hot items."

In a note released over the weekend, Brown states that Coach stores held a 25 to 40 percent off promotion in the third week of December, a representing an increase in promotional activity from the 25 percent off that the company offered a year ago. In addition, the company held an additional 40 percent off clearance promotion at its Outlet this year, compared to only a 50 percent off promotion a year ago.

On the other hand, Michael Kors Stores held a 25 percent off clearance promotion in the third week of December this year, in-line with last year's promotion. Similarly, Kate Spade held a 25 percent off promotion in clearance items, in-line with last year's promotion.

While Brown does state that Michael Kors and Kate Spade handbags are selling well, the analyst believes that margins will “likely suffer” due to the promotional activity and several retailers used price-matching policies. The analyst also notes that it may be difficult to sell handbags at full price going forward despite being told by several store managers that elevated promotional activity is needed to maintain consumer interest in 2015.

Brown also states that Coach sell-through sales were “notably weak,” but did pick up at Macy's, Inc. (NYSE: M) over the weekend with a buy-one-get-one 50 percent off promotion. In addition, department store managers told Brown that Coach sales have been “lackluster” during the month and first-hand observations pointed to little or no traffic in Coach stores.