Despite being founded in 1981, Michael Kors Holdings (CPRI -1.98%) is the new kid on the fashion block. Since its IPO in 2010, Michael Kors has experienced meteoric growth. While name brands Polo Ralph Lauren (RL -1.15%) and Coach, (TPR -2.41%) have existed in the minds of consumers for many years Michael Kors has no only begun encroaching on their customer base, thereby growing it's revenues from $800 Million to over 3.5 Billion since its IPO in 2010, it has also grown to become a darling of Wall Street valued at over 27 its current fiscal years estimated earnings. Surely Coach and Ralph Lauren are taking notice – and you should too. But how much of the company's growth is behind it? Can it continue to grow and eventually overtake its larger, more established competitors?
An Unlikely Success
Michael Kors had a rough start in its first 15 years of operation. Only within the past decade has Michael Kors experienced a rapid growth in fans and revenue sales. Nine years after launching his first Women's Collection into department stores, Kors had to file chapter 11 bankruptcy due to lack of sales from his high-end, overly priced Women's Collection. Later on, Kors developed his menswear and accessory lines with lower price tags. It was not until 2004 when he became a judge on Project Runway that his fashion designs generated large interest with fans of the show leading to rapid expansion of store locations and revenue sales. Today, the Michael Kors brand sells men's and women's apparel, handbags, jewelry, shoes, fragrances, luggage, and other accessories for both men and women.
Making Green in fashionable ways
Given the price points frequently exhibited by these fashion behemoths, it should be no surprise that they are profitable. A quick review of the last three years' worth of results for these three fashion retailers tells the story:
Michael Kors Holdings for the Fiscal Years Ended March 2011, 2012, and 2013
|
FY Ended 2011 |
FY Ended 3/31/2012 |
FY Ended 3/30/2013 | |
|---|---|---|---|
|
Revenue |
$803 Mil. |
$1.3 Bil. |
$2.18 Bil. |
|
Net Income |
$72.5 Mil. |
$147 Mil. |
$398 Mil. |
|
Return on Equity |
31.4% |
32.5% |
38% |
Coach, for the Fiscal Years 2011, 2012, 2013
|
FY Ended 7/2/2011 |
FY Ended 6/30/2012 |
FY Ended 6/29/2013 | |
|---|---|---|---|
|
Revenue |
4.16 Bil. |
$4.76 Bil. |
$5.075 Bil. |
|
Net Income |
$881 Bil. |
$1.04 Bil. |
$1.034 Bil. |
|
Return on Equity |
54.6% |
52.1% |
42.9% |
Ralph Lauren Corp. for the Fiscal Years Ended 2011, 2012, 2013
|
FY Ended 4/2/2011 |
FY Ended 3/31/2012 |
FY Ended 3/30/2013 | |
|---|---|---|---|
|
Revenue |
$5.66 Bil. |
$6.86 Bil. |
$6.9 Bil. |
|
Net Income |
$568 Mil. |
$681 Mil. |
$750 Mil. |
|
Return on Equity |
17.2% |
18.6% |
20.1% |
Michael Kors is clearly doing well, more than doubling its revenues in just two short years. However, as a business it doesn't generate the returns of its competitor Coach, Foolish investors can see this in the return on equity figures shown by all three of these fashion retailers. While all three are above average compared to the average company, Michael Kors has experienced returns on equity in the 30-38% range for the last three years while Coach, has provided investors with 40-50% returns on equity.
Recent Results
As many of us have observed more recently, Michael Kors Holdings Ltd, Coach Inc, and Ralph Lauren have expanded their brands to narrow competition, selling similar accessories to consumers. The competition has gotten fiercer throughout the past ten months and it's clear by their first quarter earnings for FY2013 who is rocking fashion industry sales. Michael Kors reported a 54.47% jump in second-quarter revenue sales from last year's second quarter. Coach, on the other hand, experienced a 1% decline in revenue between first quarter sales in 2012 to this year's first quarter sales. Coach owes its poor performance to North American handbag sales and industry competition. Ralph Lauren, though had an increase of 3.74% in revenue from first-quarter earnings in 2012 to the same quarter in 2013, having much to do with the company's larger focus on its retail business as well as changing market trends.
Conclusion
All three of these major fashion companies are here to stay. Ralph Lauren is a icon of the fashion industry, Michael Kors is growing at high rates and Coach is a prime example of an exceptional business with great returns on equity. It is likely that Michael Kors will continue to grow until it reaches a comparable size to its two larger cousins but at that point its growth will likely slow. It is easily to count Coach, out given recent results but Foolish investors should not forget that this is a company that has been around since 1941 and should not be underestimated. Its brand strength and superior returns on equity will make this a long term winner. For Foolish investors that want to buy a fashion company and hold for the long haul, Coach and Michael Kors are probably your best bets.
