NEW BEARISH Plays

Coach, Inc. - COH - close: 33.99 change: -0.26

Stop Loss: 34.60
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 14, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 10.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
Coach started in a Manhattan loft back in 1941. Their focus on high-quality leather goods has expanded to handbags, men's bags, women's and men's small leather goods, footwear, outerwear, watches, weekend and travel accessories, scarves, sunwear, fragrance, jewelry and related accessories. As of last year COH had almost 1,000 stores with more than 500 in North America and more than 400 in Asia.

It used to be that COH was the big brand in luxury items. It seemed like they could do no wrong with strong growth. It appears they out grew their exclusivity. It did not help that rival Michael Kors (KORS) was beginning to hits its stride and steal the spotlight from Coach.

It has been a tough year for retail companies. 2014 started with a very harsh winter that kept consumers indoors. COH was not immune to this effect. However, normal retailers could lay blame at the rising cost of gasoline or food items. That shouldn't apply to COH, which was always seen as a retailer to the higher-end consumer.

Desperate to stop the slide in sales COH resorted to promotions and discounts. This seemed to backfire. While the promotions may have increased foot traffic in their stores it helped sully their appearance as a luxury brand. Today COH is trying to turn things around. They're going to revamp their stores and go back to full luxury pricing. This could be expensive and pressure their margins as they try to turn things around.

COH held an investor day on June 19th. They told analysts that Coach would close 70 underperforming stores in North America as part of the turnaround plan. Many analysts leaving the meeting with COH turned bearish. In the three weeks following the analyst day shares of COH were downgraded six times.

Analysts have been reducing their earnings estimates on COH and that's never a good sign. Yet that could set up for an upside surprise when COH does report earnings on August 5th. Thus we do not want to hold over the announcement.

The June 2014 low was $33.60. I am suggesting a trigger to launch bearish positions at $33.45. Short-term traders may want to target a drop toward $30.00, which might be round-number support.

Trigger @ 33.45

Suggested Position: short COH stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the AUG $33 PUT (COH140816P33) current ask $1.00

Option Format: symbol-year-month-day-call-strike

Annotated chart:

Weekly chart: