Fashion accessories manufacturer Coach (COH) announced fiscal Q3 results before the bell Tuesday, leading to a miserable day for COH stock holders.
Coach earnings came to 68 cents per share, which topped analyst estimates of 61 cents but were down 21% year-over-year. Bigger trouble came in revenues, which at $1.1 billion were lower than the expected $1.13 billion.
The real focus for COH investors was the company’s sales breakdown by region, and that was a mixed bag.
The company’s sales breakdown by region however was the focus for investors and there it was a mixed bag. North America sales fell 18% YOY to $648 million, while comps fell 21%. On the other, hand international sales rose 14% to $441 million, with great growth in Asia where sales in China rose 25% and sales in Japan were up 10% year-over-year.
Still, it is becoming increasingly clear that in the U.S. market, COH is losing the battle to competitors such as Michael Kors (KORS), and as such, the weakening comps were the focus for investors after the report.
In response, Wall Street punished Coach stock to the tune of 9.34% — an ugly day for a stock that has been constantly sliding lower for more than two years now.
Coach Stock Charts
After an ultra-steep rally off the early 2009 lows, Coach stock topped out in a classic fashion in early 2012. A last rally from August 2011 into early 2012 gave up all of its gains just as quickly after topping. From a technical perspective, COH developed the head formation of a large head-and-shoulders pattern.
By March 2013, Coach stock had retraced 50% of its entire rally off the 2009 lows to the 2012 top, and the ensuing bounces acted as forming the right shoulder of the massive head-and-shoulders formation. Since late 2012, COH shares have formed a series of lower highs (the right shoulder), all of which is adding lots of weight on the neckline of the formation around the $44.50-$46 area.
After Tuesday’s post-earnings selloff, Coach stock has once again reached this thinning support line, and through this multiyear lens, COH now clings on to a major level, which if broken could push shares well lower still.
On the daily chart, Coach stock also has fallen out of a bear flag formation, pushing COH back near its February lows. Also note that COH bumped into resistance near its 100-day moving average (blue line) on Monday.
From a momentum perspective and keeping the multiyear chart in mind, barring any immediate bullish reversal, Coach stock looks to be poised for lower prices in the near-term.
Active traders and investors can consider shorting the stock near Tuesday’s lows for a move toward the low $40s, while more conservative traders might want to see if COH can’t consolidate for a few days before trying it from the short side. Options traders may consider selling out of the money call spreads.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.