Brian Sozzi Discusses Earnings From Coach

Brian Sozzi from Wall Street Strategies is out with a research report on Coach (NYSE: COH) after it reported earnings.

In the note, Sozzi says, "For the second consecutive quarterly earnings release, the market looks prepared to sell the news on Coach (COH). At first glance, Coach had a solid quarter of top and bottom line growth in a North America retail environment best characterized as volatile. Keep in mind that Coach is not a traditional luxury goods play, distributing lower priced/quality (Poppy) handbags and accessories to department stores in North America and having a factory distribution channel (anyone ever visit the Gucci outlet?). So it's plausible that with the renewed weakness in consumer spending evidenced in 1Q, Coach's goods would not necessarily be a top of mind purchase for a head of household of a middle income family, which is dealing with higher food, gas, and back to school bills. Although Coach's China story remained nicely intact in the quarter (double-digit percentage comp growth), we think there was consumer related stress on the North American business...one just had to engage in a game of puzzle building to find it."

Sozzi goes on to say, "The stock is priced for perfection, and unfortunately a level of excellence was not inherent in the report if we put the pieces to the puzzle together correctly. Numbers were good, but good in this trading environment and with a stock priced for earnings sizzle will likely be sold by the market. We will be paying careful attention to the comp composition (transaction value versus traffic) and the cause of the gross margin drop. But, at the moment, we feel the market's initial response is appropriate."

Shares of COH are down 35 cents in pre-market trading to $64.94.