NEW YORK (MarketWatch) — Shares of Coach Inc. ranked as the biggest decliner in the S&P 500 index Wednesday, slumping 15% after the upscale designer said for the first time, it wasn’t growing at the same pace as the women’s handbag market in North America.

Even more worrisome, the once high-flying company US:COH is facing competition from brands such as Michael Kors, Tory Burch and Kate Spade, among others, that are taking away market share, according to analysts.

“Our checks and industry data continue to suggest [Coach] is having difficulty defending its industry-leading market share to upstart lifestyle brands and more-promotionally driven brands in U.S. department stores,” said Cowen & Co. analyst John Kernan.

Coach’s second-quarter profit and sales missed expectations, in light of an unexpected drop in same-store sales in North America, its top market. Total same-store sales there fell 2%, the first such decline since the company’s September 2009 quarter.

Lew Frankfort, chief executive of Coach, blamed disappointing holiday sales in the region, where traffic at both its full-priced stores and factory outlets came in lower. As rivals increased promotions to boost sluggish demand during the holiday season, Coach kept its own at a similar level as the year before.

The results rattled other accessories’ brands and some luxury brands’ stocks: Fossil Inc. FOSL, +12.80% fell 2.8%, while Tiffany & Co. TIF, +1.58% dipped 0.4% and Ralph Lauren Corp. RL, +0.80% lost 1%. Shares of Michael Kors Holdings Corp. US:KORS, a top Coach rival, traded little changed on the session. Read in The Tell: Do older brands like Tiffany and Coach face age discrimination?

Also see: Tiffany’s sparkle fades, becomes show-me story.

CEO on ‘brand proposition’

Uncertainty over the fiscal cliff, along with slow recovery efforts in the Northeast in the wake of superstorm Sandy, hurt demand, Frankfort said. The company also was hurt by lower demand for its logo and other nonleather handbags, with consumer preferences shifting toward leather products. Read: Made in America gains fashion with luxury brands.

Coach estimated that growth in the addressable women’s North American handbag and accessory category remained strong in the holiday quarter, rising about 10%. In comparison, Coach’s total North American sales increased 1% to $1.08 billion as the company’s shipments to department stores also fell.

“This is the first time that we have not held or grown faster than the category,” Frankfort remarked on a conference call, qualifying that by saying the company already had about a 30% market share. “Frankly, the surprise for us was the level of promotional activity that we saw within department stores in the month of December.

“We did not promote our way to positive comps, which obviously we had the marketing leverage to do, but wanted to protect the brand proposition.”

The executive added he’s “confident” in the New York-based company’s ability to address “the near-term challenges in North America.”

Coach, seeking to transform itself from a handbag label to a “lifestyle” brand, is expanding into men’s products, sweaters and other apparel, along with outerwear and jewelry. This spring, Coach is rolling out a more complete assortment of shoes beyond its traditional, casual and sneaker-oriented offerings.

Staying on the sidelines

Coach forecast second-half comparable sales in North America to be even with last year, adding its outlook has “become more cautious.”

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“We believe these near-term challenges offset long-term strength from [Coach’s] expanding men’s category and international markets,” said Jefferies & Co. analyst Randal Konik. “We remain on the sidelines.”

Profit for the second quarter ended Dec. 29 rose to $352.8 million, or $1.23 a share, from $347.5 million or $1.18 a share a year earlier. Sales rose 4% to $1.5 billion. Analysts surveyed by FactSet had, on average, been looking for a profit of $1.28 a share on sales of $1.6 billion.

Gross margin was flat at 72.2%, missing some analysts’ estimates.

Coach’s U.S. market-share losses “are accelerating, which we expect to continue,” said UBS analyst Michael Binetti, adding that the company’s growth has slowed. “While stronger competition is an obvious challenge, we believe years of chasing volume growth through the low-end factory channel have limited the brand’s options to reinstate positive growth in the medium term.”

International sales increased 12% to $411 million, also missing some analysts’ estimates. China sales rose 40%, including a double-digit gain in same-store sales. In Japan, sales declined 2% minus currency translations.

“Coach is hardly flying in on the wings of glory,” commented Hedgeye analyst Brian McGough. “The U.S. handbag market is one that represents 70% of Coach’s business. If it can’t grow profitably, then nor can Coach.”