Why Coach Shares Plummeted

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of women's bag-maker Coach (NYSE: COH  ) were looking threadbare today, falling 16% today after the company missed earnings estimates and unveiled a surprise rebranding strategy.

So what: Same-store sales in North America, its core market, dropped 2%, and the company announced a rebranding effort aimed at the footwear market much to the bewilderment of investors. The 72-year-old brand is synonymous with high-end leather bags, and investors seemed to be interpreting the move as a sign that growth in its primary segment has slowed. Revenue grew just 4% in the quarter, and EPS of $1.23 was $0.05 shy of estimates.

Now what: Other luxury retailers, including lululemon athletica and Tiffany, have reported disappointing holiday results, so I wouldn't be too concerned about the slow sales growth, but the shift to footwear seems bizarre. The women's shoe industry is extremely competitive, and while Coach has a brand it can leverage, it's unclear if that necessarily translates into shoes. The company also sells accessories such as wallets and watches, and CEO Lew Frankfort said there is "a very substantial opportunity" in shoes. We'll know in March when Coach relaunches its shoe section in nearly half of its stores. Get an update when that happens by adding Coach to your Watchlist here.


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