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UPDATE 4-Fewer discounts, luxury-handbag demand drive Coach profit beat

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By Jessica Kuruthukulangara

May 2 Coach Inc reported a higher-than-expected quarterly profit, as the handbag maker cut back on discounting in the United States and sold more expensive bags, sending its shares up 11.4 percent.

The New York City-based company also reaffirmed its full-year profit and revenue forecast.

After years of lackluster sales, Coach, like other affordable luxury brands including Michael Kors Holdings Inc , is trying to turnaround its business.

The company is limiting promotions and pulling its handbags off department store shelves in a bid to regain its premium-brand cachet.

Coach said on Tuesday comparable sales for its handbag business increased in the third-quarter, driven by demand for its more expensive 'Rogue' and 'Swagger' handbags. The company does not break up sales for the business.

Sales of handbags priced above $400 made up over 55 percent of handbag sales in North America in the third quarter, up from about 40 percent last year, Chief Executive Victor Luis said on a post-earnings call.

Luis touted Coach brand ambassador Selena Gomez's influence as a factor in making the brand more relevant. The "Same Old Love" singer's first 2 Instagram posts for the company generated 5 million and 6 million likes, respectively.

Gomez, whom Coach signed on as ambassador in December, will collaborate with the company's Executive Creative Director Stuart Vevers to create a new style of handbags, slated to hit stores globally later this fall.

"There are plenty of indications that the (turnaround) strategy is working," Neil Saunders, managing director of GlobalData Retail said.

Saunders pointed to Coach's market share gains in higher price point bags and accessories, and its strong performance at company-owned stores, where comparable sales rose 3 percent this quarter.

Still, Coach's total net sales in the third quarter ended April 1 fell 3.7 percent to $995.2 million, partly due to its decision to cut discounts and shut stores.

Profit, however, rose nearly 9 percent to $122.2 million. Excluding items, Coach earned 46 cents per share in the quarter, beating analysts' estimates by 2 cents, according to Thomson Reuters I/B/E/S.

Coach said it still expected full-year revenue to increase in low-single digits and profit to grow in double-digits. It had reported revenue of $4.49 billion and adjusted profit of $1.98 per share last year.

Coach shares posted their biggest intraday percentage gain in more than a year, closing $4.41 higher at $43.15.

(Reporting by Jessica Kuruthukulangara and Siddharth Cavale in Bengaluru; Editing by Supriya Kurane and Sayantani Ghosh)

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