I'm Feeling a Bit Smug this Morning - Coach (COH) Down 7% on Earnings

I have been warning on Coach (COH) as a retail tell since mid August. To see my litany of entries on this name and why I thought it was destined for a fall please click here. Again, I am unable to short individual names in this fund, but if this were a long-short hedge fund, this would of been a great name to short. This is the type of holding that could of really helped my performance; I went negative on Coach in the mid $40s and its now trading at $38 or a 15% drop in 60 days. It is now at levels not seen since November 2006 - so for 'buy and hold' types, an entire year just got wiped out. At some point it becomes a buy, but I am in no rush to touch any retailer outside of 3-4 select names which are secular growth stories.

Any bounces in domestic facing retailers aside from a few very narrow niches, restaurants, homebuilders, and financials will continue to be good shorts. I cut back my UltraShort Financials (SKF) because the darn sector was down for nearly 2 weeks in a row - they can't go straight down. So the strategy is to let these guys bounce (as the homebuilders started doing yesterday), as short sellers cover and some "bottom is in" fools jump in, stir, shake, and get back in, on the dark side once they have their bounce.

Back to Coach:

• High-end accessory maker Coach Inc (COH) on Tuesday reported higher quarterly profit, but its shares fell more than 8 percent as its outlook for the current period came in below analysts' estimates.
• Coach Chief Executive Lew Frankfort said he was concerned about weak consumer traffic at the company's U.S. stores, particularly in the past several weeks.
• For the current quarter, Coach said it expected earnings of 68 cents per share on sales of about $970 million. Analysts were expecting 70 cents a share on sales of $983.6 million.
• The company said it expected sales at U.S. retail stores open at least a year to rise at a low single-digit percentage rate for the quarter.

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Takeaway: Coach is a quality retailer. I have invested in the name before. I like the CEO. Earnings were not bad, same store sales pretty darn good, but this stock is not priced for "not bad earnings" - its priced for meet and beat. Don't get any of those points wrong. Stocks discount the future. The future is murky at best, and I'd contend far worse than murky. The point is, none of that matters in the face of the aspirational US consumer now unable to nurse herself at the trough of easy credit. The consumer is now at the last stage, turning to credit cards. Once those are maxxed out I don't know the next step. Defaults? We are seeing financial after financial reporting major increases in future loss provisions in their consumer divisions. They see the same writing on the wall.

Last, have you noticed how so many companies (didn't Target just say it YESTERDAY) that the consumer is literally getting weaker by the week? The velocity of this has to be concerning to someone, anyone? Maybe we are looking at 50 basis point cut instead of 25 basis point cut. I still in disbelief some people think no fed cuts. We are in dire straits in 70% of our economy (the consumer).

Long UltraShort Financials in fund; no personal position