COH: No Manpurse For Us

On July 18, Brian McGough had the idea to short Coach (COH) and we did so in the Hedgeye Virtual Portfolio. Our levels sent us the indication to sell, regardless of the fundamentals of the company. There are several other factors that make the bearish case for COH. Slowdown in China will affect the company’s push into the country as it looks for $300 million in sales and store growth. That just won’t last.

 

The other issue at hand is the rollout of Coach Men’s stores. They are working to get the store count up to 100 from 42 by the next quarter. Sales at US department stores have slowed and other premium brands like Kate Spade, Tory Burch and Michael Kors will put the pressure on Coach as they take sales away. High inventory levels will also plague the retailer as they continue to grow.

 

Here’s what Managing Director of Retail Brian McGough had to say about Coach this week:

 

“In listening to Lew Frankfort talk about Coach’s global business, he sounded remarkably like Howard Schultz in talking about Global Economic headwinds. When asked about why, he reverted to everything Macro…employment, jittery confidence around an election year, gas prices, and several other factors that seemed to not matter when they were working in COH’s favor (and factors that we already know). Now COH is sitting here looking at FY13 (which just began) as ‘an investment year’, with reliance on men’s and China. But they’re both so small that on a consolidated basis, they will account for 5% growth at best if successful. In the grand scheme of things, Coach is a very good company. But the time still is not right to own the stock. Our bias remains on the short side.”

 

 

COH: No Manpurse For Us - COH levels


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