Forget Coach, Buy Michael Kors for the Holidays

With the holiday shopping season fast approaching, companies with powerful brand recognition usually do well. In fashion, there are few brands as hot as Michael Kors (NYSE: KORS  ) right now. With rapid revenue and EPS growth fueled by aggressive expansions to product and distribution platforms, Michael Kors is a great way to capitalize on the impending holiday shopping madness.

Brand strength
Michael Kors has experienced rapid acceleration in brand strength over the last few years, so much that it is now a serious competitor to industry stalwart Coach (NYSE: COH  ) .

A test of brand popularity can be derived from social media. On Facebook, approximately 10.3 million people like the Michael Kors main page, versus only 4.8 million who like the Coach main page. On Twitter, the results are largely the same; Michael Kors has 1.6 million followers, versus Coach's half million.

Consumers obviously see the Michael Kors brand as something new, a fresh take on luxury items compared to the more traditional offerings from older retailers like Coach. This is directly reflected in the company's retail segment, which has been increasing both sales and margins in recent quarters.

Aggressive growth
In the recently reported second quarter of fiscal 2014, Michael Kors grew total revenue an impressive 38.9%. However, the company's retail division grew sales 46.8%, which significantly outpaced the 29.9% growth in its wholesale segment.

Most importantly, same-store sales increased 22.9% and gross margins as a percentage of total revenue increased to 60.8%, up from 59.3% last year. This indicates that Michael Kors is having no problems selling inventory at elevated price levels, which indicates extreme brand strength and popularity.

As long as consumers continue to view the Michael Kors brand as fresh and exciting, the aggressive growth will likely continue. However, in addition to robust same-store sales growth, the company has also drastically increased its store count.

At the end of the most recent quarter, Michael Kors operated 352 total retail locations, up over 30% from last year's count of 269. The company opened 15 new stores in North America alone during the quarter, and management believes there is room for approximately 140 additional locations in the domestic market. 

The company also has plans to expand aggressively in many international locations including Europe and Asia Pacific, where it expects to more than double its current store count in the future. 

Michael Kors is also actively engaging consumers in an effort to grow its direct-to-consumer business. The company has plans to revamp its e-commerce site in the fall of 2014. Chairman and CEO John Idol explained, "We see tremendous opportunity in this channel and see e-commerce becoming a multi-million dollar business for the company."

Coach's struggles
The strong growth at Michael Kors is having a negative impact on Coach, since the companies directly compete in numerous segments. Coach reported largely flat revenue and EPS growth in the first quarter of fiscal 2014. Most information indicates that Coach's brand is not attracting new buyers.

Coach's North American business saw revenue decline 1% in the most recent quarter, which stands in stark contrast to the 31% growth that Michael Kors experienced in the same region. Coach's gross profit also fell, again in direct contrast with Michael Kors. 

No sales here
The positive momentum of the Michael Kors brand indicates that the company is positioned to do very well in the holiday shopping season. Despite several analysts calling for a weaker holiday season compared to last year,  brands that are in demand are the ones least likely to suffer.

Michael Kors' increasing sales growth and strong margins indicate that it has not had to discount items, and that trend will likely continue going forward, even during the potentially challenging holiday shopping season.

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