Coach (NYSE:COH) tanked on the analyst/investor day presentation. My position was long Jan 2016 35 calls and short Aug 2014 52.5 calls. I rolled the Jan 2016 calls down to 30, bought back the 52.5 calls and sold Nov 38 calls.
Before taking action, I listened to the presentation, or more accurately, viewed the slides and listened to the sections that were of interest to me. I also browsed a few articles and the comment stream here on SA.
Giving management two years to do the turnaround, the end result might be EPS of $2.50 and a share price of $40, with the market expecting them to grow 7% going forward, in keeping with the segment of the luxury goods market they are in. I got the 7% from the presentation, that's what they think is out there for the industry through 2018.
Over the years, management has done a good job creating value, as can be verified by the growth of sales, EPS, shareholder's equity, etc. Closing 20% of stores, and doing what they have to do to bring down inventory, update the store format, and appeal to a younger demographic, improvement can be expected. Management has the financial resources and the determination to take strong action to address the problems.
It's possible they won't be able to restore the lost cachet, or to retain the existing customer base while transitioning to a look that will be more current. The brand has been cheapened by excessive flash sales and it will take a while for corrective action to restore perceptions. I think it's more likely they will succeed than not.
In the meantime, I can earn premium selling calls, and if it goes over $38 in November I will be both surprised and pleased.
The loss incurred riding the stock down to the current level is a sunk cost. In the meantime, I think I can make money from where it is.
Disclosure: The author is long COH.