The High End Is Done (COH)

More thoughts from Karl Denninger, The Market Ticker: The High End Is Done (COH)

The crooners have all said that "high end is immune" to the economic mess.

Today, they're wrong.

Coach Inc. (COH), the largest U.S. luxury handbag maker, tumbled as much as 17 percent in early trading after reporting fiscal fourth-quarter revenue that trailed analysts’ estimates amid slowing North American sales growth.

Coach fell 16 percent to $50.75 at 7:55 a.m. in New York after declining to $50.32. The shares had dropped 0.8 percent this year through yesterday.

Sales at North American stores open at least a year advanced 1.7 percent, compared with a gain of 10 percent a year earlier. Jennifer Davis, an analyst at Lazard Capital Markets, projected an increase of 5 percent. Coach, facing competition from Michael Kors Holdings Ltd. (KORS) and brands such as Tory Burch and Kate Spade, is working to attract consumers who have curbed spending on discretionary purchases amid slow economic growth.

IMHO KORS may be the short of the year on this.  Competition?  No, the fact of the matter is that the economy sucks donkey balls.  Coach has a P/E of 18 while KORS has a P/E of 53!

Gee, what do you think the odds are on this working out well?  Granted, the price on KORS has come down a lot of late, from $50.69 a few months ago, but it remains ridiculously overpriced compared to its competition and while Coach is trying to blame the slowdown on competitive pressures, I think the answer is simpler — the well is running dry on $500+ handbag buyers.

When you start talking about an "increasingly promotional environment" (and Coach did), you've got trouble afoot.

Disclosure: No position in either firm at present but I am eying KORS as a potential short target based on these results.

Pic from Coach Outlet Web Factory

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Comments

  1. I think it may not be the same group of thinkers. Also, keep in mind, that inequality is not in itself horrific, it's the extent and reasons that are upsetting. And the dividing line between "rich" and "everyone else" is very subjective.  

  2. stockdoc9999A says:

    It's interesting how the same groups of 'thinkers' decry income inequality as horrific but then complain that 'the rich' are just not in a position to spend like they used to.
    It seems these event should be mutually exclusive.

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