Coach Calls a Time-Out for the Aspirational American Consumer

I have referred many times to Coach (COH) as my canary in the coal mine for the American consumer; especially since it serves the 'aspirational' class - i.e. "I want to look richer than I really am so I overspend and pull money out of my house like an ATM to impress the ladies at work" crowd. Well the stock is again breaking down below both its 50 and 200 day moving averages.

Again, I cannot be short in this fund, but many retailers and restaurant stocks are going to be great shorts (note: exclude restaurants with international exposure like a YUM or MCD or those with $5 type of menus - most of the middle end chains I see a slowdown both from the consumer and major squeeze on their costs.)

Don't ignore the fact the weaker dollar hurts importers - and some of our food supply comes from overseas; so on top of the domestic food inflation we have the imported kind - on top of a weaker dollar. But I think Coach (COH) is telling us, the US consumer is finally slowing down without access to 'the ultimate credit card i.e. the house'.

I know the market is forgetting but don't ignore the Target (TGT) and Lowe's (LOW) tells from a few weeks ago.

Comments

[User 112873:]

I disagree. Since Coach derives a significant % of sales in Japan, and soon China, the favorable exchange rate in these healthy overseas markets should offset weakness in US sales. Further, as Coach expands product offerings and market segments, same store sales should continue to increase in the US and abroad. Prognosis is good, especially for the long term investor. Coach is a solid company producing 20%+ annual sales increases that is just entering the Chinese marketplace. Sure, Coach isn't producing those heady 40%+ sales gains any longer, but consistent 20%+ is just fine by me.

2007 Oct 11 04:12 PM

[TraderMark:]

Japan, not impressed - slowing mature market
China, yes it will be a good opportunity and why I will be back in Coach at some point. But not this point and not until things improve technically in the stock. It's broken right now and tied to 2 mature markets, one of which is reliant on massive borrowing (USA)

Again its about timetable. I am a bull on Coach in the long run, but not in the near term. $41 would not surprise me in the near term; thats >10% down from where I wrote the article.

2007 Oct 11 06:07 PM