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Coach reports first quarterly profit growth in three years

A shopping bag from the luxury brand Coach is seen along Rodeo Drive in Beverly Hills, California, May 21, 2013. REUTERS/Fred Prouser/File Photo

By Abhijith G

(Reuters) - Coach Inc (COH.N), which has been trying to regain its cachet in the luxury handbag market, reported its first growth in quarterly profit in three years.

The maker of the Swagger line of leather handbags also turned in its second consecutive quarter of sales growth, spurred by demand in China, Japan and Europe.

The results show that Coach's efforts to reinvigorate its business are paying off after the brand lost its premium status due to an expansion spree that flooded the market with its bags.

The 75-year-old company has renovated stores, cut back on promotions and appointed well-known fashion designer Stuart Vevers as head of its creative team to win back market share from newer entrants such as Michael Kors Holdings Ltd (KORS.N).

"Our objective going forward may be to partner with department stores, to pull back Coach from their store-wide sales events ... and may be even reduce the number of department store doors where the brand is," CEO Victor Luis said.

The company plans to expand through acquisitions and will not develop brands internally, Luis told Reuters.

Coach bought luxury footwear maker Stuart Weitzman in January last year, a deal that has helped boost sales.

The company's shares were up as much as 3.8 percent at $41.74 on Tuesday.

"The better numbers add to the sense that the long promised recovery of the brand is starting to materialize," said Neil Saunders, chief executive of research firm Conlumino.

Coach said it would cut about 300 jobs, or 2 percent of its workforce, with most cuts in corporate positions. The company will take a pre-tax charge of about $65-$80 million in the fourth quarter.

Chief Operating Officer Gebhard Rainer and global marketing President David Duplantis are among those leaving the company.

Comparable sales for the Coach brand in North America were flat in the third quarter ended March 26, ending three years of declines. Analysts had expected a drop of 1.4 percent, according to Consensus Metrix.

Sales in China rose 2 percent on constant currency basis. Japan sales were up 7 percent, while in Europe they increased by double-digits.

Total revenue rose 11.2 percent to $1.03 billion, beating average analyst estimate of $1.02 billion, according to Thomson Reuters I/B/E/S.

Net income rose more than 25 percent to $112.5 million, or 40 cents per share. Excluding items, Coach earned 44 cents per share, topping the average analyst estimate by 3 cents.

(Reporting by Abhijith G and Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)