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Michael Kors Impressive Financial Run Continues

Luxury retailer, Michael Kors Holdings Limited (KORS) has effectively maintained its streak of strong quarterly performance. In the trailing 10 quarters, the company has beaten the Zacks Consensus Estimate in all the quarters at an average of 28.6%.

In the recently concluded second-quarter of fiscal 2015, earnings of $1.00 per share and quarterly revenues of $1,056.6 million came miles ahead of the Zacks Consensus Estimate while rising 40.8% and 42.7% year over year, respectively.

A consistently robust performance across all segments and geographies facilitated this growth. Comparable-store sales (comps) increased 16.4% in the quarter, marking the 34th straight quarter of comps growth.

Driven by stellar results, the company raised its earnings expectations for the fiscal 2015. For the full year, revenues will likely be in the range of $4.3–$4.4 billion as against the earlier projection of $4.25–$4.35 billion while earnings are expected in the range of $4.13–$4.18 against the earlier projection of $4.00–$4.05 per share. Moreover, the company also announced a $1 billion share repurchase program, thereby boosting investors’ confidence in the stock.

Michael Kors, which competes with Coach, Inc. (COH), is rapidly expanding to avenues other than its signature handbag business. The company has forayed into avenues like jewelry, fragrances and Men’s apparel. Management believes that it will be able to grow the Men’s business to a whopping $1 billion and around 500 stores, driven primarily by sportswear, leather goods and watches. Further, it aims to open around 500 jewelry shop-in-shops over the long term, from 190 at the end of second-quarter fiscal 2014.

Moreover, to keep in sync with changing trends, Michael Kors unveiled its domestic online portal in September this year. With a full-fledged functional site, management has already seen a 70% year-over-year spurt in net sales in the last two months.

To capitalize on opportunities presented by its ever-increasing popularity, especially in overseas locations, Michael Kors is on a store expansion drive across the globe. As of Sep 27, 2014, Michael Kors had 649 stores, of which 473 were company owned and the remaining were operated by licensees. Management expects to open 50 stores in North America and Europe, 10 stores in Japan in fiscal 2015 and over the long-term take the counts to 400, 200 and 100 stores, respectively.

Additionally, to ensure high visibility, the company is converting department store doors to shop-in-shops as reflected in a 46.1% rise in Wholesale net sales in the second quarter of fiscal 2015. With over 299 shop-in-shop conversions globally, the company had about 1,969 shop-in-shops worldwide and is looking to increase the number by 750 in fiscal 2015.

With a clean balance sheet, the company is poised to carry on with its growth expansion plans unabated. However, increasing investments across board along with markdowns will lead to margin ‘normalizations.’ Similarly, comps growth will decelerate and stabilize at normal levels since currently, the rate is high and unsustainable.

At present, Michael Kors is Zacks Rank #2 (Buy) stock.

Other Stocks to Consider

Other retail stocks worth consideration include Columbia Sportswear Co. (COLM), and Hanesbrands Inc. (HBI). Columbia Sportswear carries a Zacks Rank #1 (Strong Buy) whereas Hanesbrands is Zacks Rank #2 stock.

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Read the Full Research Report on COH
Read the Full Research Report on COLM
Read the Full Research Report on HBI


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