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Coach is going out of fashion among investors

April 29, 2014: 3:11 PM ET
Coach brand

Coach shares plunged after the company reported slumping sales.

Marilyn Monroe famously said, "Give a girl the right shoes and she can conquer the world."

Coach could sure use better shoes to impress Wall Street. The company is going out of fashion quickly with investors.

Shares of Coach (COH) tanked nearly 10% Tuesday after the purse, shoe and accessory company reported worse than expected sales for its most recent quarter, especially in North America.

But Coach's woes aren't new. The stock is down more than 20% over the past 12 months.

The problem?

Coach's rivals are simply better dressed this season. Consider that shares of both Michael Kors (KORS) and Kate Spade (KATE) gained ground Tuesday and are up for the year.

Coach stock went out of fashion today as rival Michael Kors enjoyed a bounce.

Coach stock went out of fashion today as rival Michael Kors enjoyed a bounce.

These fashion firms compete heavily for middle and upper middle class buyers. They occupy the space just below the premier fashion houses like Prada and Chanel.

Coach handbags sell for several hundred dollars compared to the multi-thousand dollar price tags of the couture brands.

As spending began to pick up again after the recession, Coach soared in 2011 and 2012, but it has since struggled. People aren't buying the brand, and it has even had to close stores.

On a conference call with analysts, Coach CEO Victor Lewis stressed the multi-year turnaround that's underway.

"As our journey progresses, we have confidence our in vision of becoming a global lifestyle brand," Lewis said.

The company is banking on designer Stuart Vevers to revive the 70-year-old brand. He's a Brit with a track record of stirring things up at other brands, including Mulberry.

Vevers' designs are supposed to hit stores later this year. In February, Coach held its first ever New York Fashion Week presentation to showcase over a dozen "ready-to-wear" outfits by Vevers.

The clothes received good reviews, but what sells on the runway and to the fashion world elite doesn't always translate to stores. Moving into clothing would also be a big departure for a company that's carved out a niche in accessories.

At the moment, investors seem skeptical -- much like consumers.

"We think investors should and will wait for greater clarity on the company's long-term strategy, brand vision, and financial outlook to be provided at the upcoming June 4 investor day, and also to see how the new product lines developed under Vevers' direction perform initially at retail this fall," wrote Omar Saad, a partner at stock research firm ISI Group, in a note to clients.

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