NEW YORK | Tue Oct 26, 2010 - (Reuters) - Coach Inc (COH.N) reported a higher-than-expected quarterly profit as the upscale leather goods maker shipped more to department stores and had strong sales abroad, sending its shares up more than 6 percent in premarket trading.

Coach - Madisson Collection

Sales rose 19.7 percent to $911.7 million, boosted by an increase in business at department stores, particularly for handbags, and sales in Western Europe and China, where Coach is relatively new to the market.

Even in the mature North American market, stores open at least a year rose by a better-than-expected 8.5 percent during the first quarter, which Jefferies analyst Randal Konik said in a note to clients reflected a reversal of the slowdown in shopper traffic last quarter that had alarmed investors.

Coach has positioned itself in the "affordable luxury" segment in the past two years as shoppers have cut back on discretionary spending, lowering average prices on its handbags by about 10 percent and expanding its outlet stores.

"The luxury consumer is cautious but willing to spend for those products she feels will enhance her sense of well being," Chief Executive Lew Frankfort told Reuters.

Sales of handbags at its own North American stores rose 20 percent.

That understanding and adapting to the "new normal" of high-end shoppers in North America and abroad is what has helped and will help Coach in the upcoming holiday season, Frankfort said.

Frankfort said in an earlier statement that he was confident the company can "drive sales and earnings at a double-digit pace" for the holidays and the rest of the fiscal year.

Coach reported net income of $188.9 million, or 63 cents per share, for the fiscal first quarter ended October 2, up 34 percent from $140.8 million, or 44 cents per share, a year earlier.

Analysts on average had forecast 55 cents per share on sales of $846.8 million, according to Thomson Reuters I/B/E/S.

The company continued its push into China, opening eight new stores there, bringing the total to 49, and said same-store sales there had risen at a double-digit percentage clip.

Frankfort dismissed the notion that antagonisms between China and other countries over the yuan could hurt Coach.

"Coach is targeting an emerging middle class in China-- that population will continue to grow regardless of currency," he said.

In Europe, Coach plans to open a flagship store on London's Bond Street as well as new stores in France, Spain and Portugal in the coming months as it seeks to benefit from a cutback on luxury spending there and take some market share from high end companies such as Hermes (HRMS.PA) and LVMH (LVMH.PA).

Gross margins rose 1.9 percentage points to 74.2 percent in the first quarter, mostly from favorable leather costs a year ago, when Coach bought the material.

But Frankfort told Reuters margins could be pressured in the coming quarters given higher leather prices in recent months.

Coach shares were up $2.73 to $47.21 in premarket trading.

By Phil Wahba
(Reporting by Phil Wahba; Editing by Derek Caney, John Wallace, Dave Zimmerman)