Michael Kors Does It Again

Michael Kors (NYSE: KORS  ) released second quarter earnings on November 5 before the market opened. The results topped analyst expectations once again and sent the stock over 5% higher in the first few minutes of trading. Let's take a look into the quarter and see if we should be buying now or if we should wait for it to cool down a bit before jumping in.

The "affordable luxury" brand
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 other categories. There are not many brands that cater to the taste of both women and men, but Michael Kors has found the recipe for success.

(Image Source: MichaelKors.com)

The results
The second quarter report was released on Tuesday and it exceeded analyst expectations on both the top and bottom lines. Here's an overview of the results:

Metric Reported Expected
Earnings Per Share  $0.71  $0.68
Revenue  $740.30 million  $725.91 million

Earnings per share grew an incredible 44.9% and revenue rose 38.9% year-over-year, with comparable-store sales rising 22.9%. Gross profit increased 42.4% to $449.9 million as the company's gross margin expanded 150 basis points to 60.8%. North American sales rose 31.2%, driven by a 21% increase in comparable-store sales and strength in the watch and accessories categories. Total sales in Europe grew 101%, due to increased brand awareness and 45% comparable-store sales growth, making Michael Kors one of the only companies finding success in the troubled European economy. Sales in other regions grew 64.1% and expansion plans are in place to reach untapped markets. Overall, Michael Kors has continued its rise as the new global luxury powerhouse and I do not think the growth is even close to slowing down.

Updated outlook
The strong results from the first and second quarters and guidance for the third and fourth quarters have caused management to increase their full-year outlook for fiscal 2014. The company now expects earnings per share to be between $2.77 and $2.81 on revenue of $2.9 to $3.0 billion; these numbers would also call for comparable store sales rising 20% for the year. Management's projections are right in line with the consensus analyst estimates of $2.78 earnings per share on revenue of $2.99 billion. Michael Kors has exceeded all expectations since going public and with the holiday season right around the corner, I think even this increased outlook is conservative.

Update on Estee Lauder and Fossil
On September 25, we discussed two beneficiares of Michael Kors' continued growth, Estee Lauder (NYSE: EL  )  and Fossil (NASDAQ: FOSL  ) . Estee Lauder is a worldwide manufacturer and marketer of makeup, hair care, skin care and fragrance products. In 2003, it acquired Michael Kors' Fragrance, giving it the rights to manufacture skin care, makeup, hair care, and fragrance products under the Michael Kors name. With the growing popularity of Michael Kors, it has and will continue to impact Estee Lauder positively. In its earnings report on October 31, earnings per share came in at $0.76 per share on revenue of $2.68 billion versus estimates of $0.73 on $2.69 billion. The stock has been relatively flat since September 25, but it has favorable forward estimates and a yield of 1.15%, so a run higher could be in the making.

Fossil designs, markets, and distributes watches and fashion accessories worldwide. It manufactures products for several companies, with the most important of these being watches for Michael Kors. In its quarterly report released in August, it showed watch sales making up 77.5% of its total revenue and this may grow to a larger percentage in the results due out after the market close. Michael Kors' growing popularity will only cause Fossil's sales to be positively affected and Kors' report before the market opened may be a direct indicator of things to come. Fossil's stock has risen over 12% since September 25 and a beat could propel it to fresh 52-week highs. 

The Foolish bottom line
Michael Kors is arguably the best growth story in the market today. It is home to one of the best lines of watches and handbags, with a growing presence in apparel and accessories, making it a well-rounded consumer goods giant. The company has just reported strong earnings, causing its stock to jump, so investors will want to wait for it to cool down before initiating a position; but do not wait too long, as this could only be the beginning of a run much higher.

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