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Coach (NYSE:COH) warned investors in November that the holiday season might be rough in 2013. COH investors probably should have listened.

COH stock opened about 7% lower on Tuesday after the company reported that earnings per share for the fourth quarter fell to $1.06 per share, down from $1.23 the year before. The analyst consensus estimate was $1.11. Overall revenues were down about 6%, or 3% adjusted for currency fluctuations. Margins also sagged; gross margins fell to 69.2% from 72.2%, and operating margins dropped to 30.7% from 35.0%.

But the numbers really start to look ugly when you look at COH's core North American market. Same-store sales in North American stores fell 14% in the quarter, due primarily to weakness in women's handbag sales. Analysts had expected a 6.8% drop.

However, the news wasn't all bad for COH stock. International sales, which make up about 30% of the total, were up 11% adjusted for currency moves. Total Chinese sales were up 25%, and same-store sales are growing at a double-digit clip. The men's business - a strategic area of growth for Coach - also continues to grow, though the earnings release did not break out men's sales.

Still, the overall message is clear. Coach's core market - the aspiring North American luxury consumer - is weak, and Coach is having a hard time fighting off upstart rivals like Michael Kors (NYSE:KORS).

Is COH Stock a Sell?

So, what are investors to take away from all of this? COH stock isn't necessarily a sell. After the knocking the stock has taken, COH trades for 13 times earnings, and it remains a very profitable company. Operating margins of 30% are still pretty impressive, even if they are lower than in quarters past.

Coach's longer-term strategy - to move beyond handbags into a broader lifestyle brand that includes clothes and accessories - is still in the early innings, though it appears to be moving the right direction. And Coach certainly continues to reward its shareholders for their patience. Coach repurchased and retired about 3.3 million shares of its common stock at an average cost of $52.99, spending a total of $175 million and taking the year-to-date total to $350 million. Coach also pays a great - and growing - dividend, which has more than tripled since 2010. COH stock yields 2.6% yield at current prices.

COH stock is down nearly 40% from its early 2012 high and currently trades at levels first seen in 2010. At current prices and with sentiment towards Coach almost universally bearish, COH stock would seem a low-risk bet with significant upside if Coach maybe - just maybe - manages to surprise in the next few quarters.

Disclosure: Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities.

Source: Coach Stock Drops On Earnings Miss And Shrinking Margins