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Finding the next global luxury brand is not always easy, but when Michael Kors (NYSE: KORS  ) started popping up on every social media outlet, every wish list, and even song verses by Nicky Minaj it was clear that something big was coming. It was about mid-2011 when this all began and the company went public in December of that year. The stock has since rallied over 270% and does not appear to be slowing down one bit.

The luxury king
Michael Kors is home to one of the most fashionable lines of women's and men's apparel and accessories. The most consumer attention has been placed on its watches and handbags, but it has been gaining ground in clothing, footwear, sunglasses, and headwear. There are not many brands that both women and men desire, but Michael Kors has found the recipe for success.

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North American growth
In Michael Kors' first quarter report, North American sales grew 46.2% year over year to $551.554 million from $377.149 million. At the conclusion of the quarter on June 29, the company operated 328 stores worldwide, up from 253 a year ago. Of these locations, 75 were added in the first quarter.

North America is the company's largest segment and the company plans to have 400 retail locations in this region alone. In addition, management wants to add 500 more shop-in-shop locations, such as inside the Macy's in New York City, to bring the total over 1,000.  These expansion plans paired with consistently high same-store-sales growth will make Michael Kors one of the best selling brands in North America.

Ni hao Michael Kors
For the first three months of fiscal 2014, sales in Asia and Australia rose 80.8% compared to the prior year. This was a "small" amount of growth from $4.329 million to $7.826 million, but with the current expansion plans in China this number will become quite large. 

In February of 2012, Michael Kors' CEO stated that the company planned to have 100 locations in China within five years. It currently has prime locations throughout the nation, but there is plenty of room for expansion within the mainland, Hong Kong, Macau, and Taiwan. Luxury goods sales in China are projected to reach $27 billion by 2015, which is about 20% of the global luxury market. If management can deliver 100 locations by this time, sales could easily exceed $200 million in the region. 

European playground
Michael Kors has found a way to thrive in even the most weak economies, like the ones you will find in Europe. In the first quarter, sales rose an incredible 144% in Europe year over year from $33.387 million to $81.479 million. According to management, the spike in sales was due to increased brand awareness and an incredible 56% same-store-sales growth. Expansion throughout Europe is not expected to be as rapid as in North America and China, but the possibility is definitely there. Michael Kors currently has locations in the very important luxury markets of London, Milan, Paris, and Munich, so I would expect more stores to be added in close proximity in these markets. 

Earnings upside
All of this expansion will allow Michael Kors to exceed its own earnings estimates and blow away what analysts are currently predicting. Here are the consensus estimates through 2016:

  • 2014: 40.1% growth
  • 2015: 22.8% growth
  • 2016: 22.4% growth
Michael Kors has exceeded all expectations since going public and it has raised its own outlook numerous times. I see these estimates as much too low. Continued quarterly outperformance from increased same store sales and expansion will cause analysts to raise their estimates. This will lower the forward price-to-earnings ratio which will make the stock more valuable and spike higher.

Kors > Coach
(NYSE: COH  )  is a global luxury brand with product offerings similar to those of Michael Kors. Coach was once in the position that Michael Kors is currently in. Coach handbags were loved by women and consumers flocked to its luxurious offerings. However, this has not been the case recently.

In the two companies' latest reports, while Michael Kors saw North American sales up 46.2%, Coach's sales increased just 6%; this included same store sales falling 1.7% for Coach while Kors' increased 25%. Since Michael Kors went public on Dec. 15, 2011, it has risen over 200% while Coach's stock has fallen about 9%. Coach has discussed taking itself private and that may be the best decision for the company right now. When it comes to investing, I would not fight the consumer and I would stay away from Coach.

The Foolish bottom line
Michael Kors has been one of the best performing stocks in the market since it went public. Its growth is unmatched in the luxury goods industry and has the potential to return a very high percentage to its investors over the next several years. This is my top stock pick for 2014 and is a great opportunity on any weakness.

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9/30/2016 4:04 PM
KORS $46.79 Down -0.08 -0.17%
Michael Kors Holdi… CAPS Rating: ****
COH $36.56 Up +0.35 +0.97%
Coach CAPS Rating: ****