Meanwhile, the bullish case for the stock is that it now trades at a 5.8% discount to the S&P 500 on a price-to-earnings basis, which is the biggest discount in three years. Coach also generated gross margins of 72% last quarter, which are better than the gross margins at Michael Kors and Ralph Lauren.
The company announced that their latest plan for reviving sales is to develop a lifestyle brand that moves across multiple products. This will undoubtedly involve increasing marketing expenses, and selling lower-margin women's apparel. My money will be on the sidelines while we wait to see if Coach can pull off this turnaround. The stock has already dropped 16%, and I don't see it moving too much lower without attracting value investors. At the same time, there isn't a reason to buy the stock until we know that management can deliver results. I would like to see sales and market share increase, even if margins have to decrease slightly.
Buying puts to limit further losses on a long stock position makes sense, but I will not be buying puts simply to speculate on a further sell-off.
Disclosures: I have no disclosures on this stock.
Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."
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