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Takeaway: The intermediate-term outlook remains bearish on the front-end of what is an investment year for COH.

We’re adding COH to the short-side of our Real-Time Positions again. While Signet’s holiday sales report is positive on the margin for luxury names today, the intermediate-term outlook remains bearish on the front-end of what is an investment year for COH.

Fundamentally, revenue is decelerating and the cost of that growth is rising. We expect this to be reflected in COH’s results for the next couple quarters at a minimum. Growth is dependent on the Legacy launch, as well as Men and to a lesser degree, China. At the same time, SG&A costs are rising to support the launch (which may or may not work) and Asia acquisitions, and Gross Margins are at risk as the financial triangulation of Sales Inventories and Margins rests in a tenuous point of our SIGMA analysis.

We know that this is all well-telegraphed, but with a decelerating EBIT growth rate until the July print – not to mention a very difficult 1Q – we need to pay particular attention to TRADE factors. Unfortunately, we can’t point to a positive near-term catalyst with our estimates 7% below consensus over the next two quarters.

Quantitatively, the stock is immediate-term overbought and would need to break $58.11 and hold that level to support the bull case from a near-term perspective. With the stock approaching $58 we’re admittedly close to that level. But we think there’s a greater chance it retests its support of $55.36 given earnings pressure.

The argument that sentiment is already bad holds some truth with the sell-side becoming increasingly bearish over the last 5-months with 66% of ratings a Buy down from 81% in August. However, short interest still stands at only 5% of the float – well below historical peaks.

While COH looks cheap relative to history at current levels – the reality is that valuation is not a catalyst.

COH: Idea Alert. Shorting. - COH TTT Table

COH Risk Management Levels:

COH: Idea Alert. Shorting. - COH TTT

COH SIGMA eroding (inventories outpacing sales growth with margins contracting):


COH: Idea Alert. Shorting. - COH S