Is Michael Kors Holdings' Growth Story Intact?

The growth story of Michael Kors Holdings (NYSE: KORS  ) has been one of the most impressive in the fashion retail industry. It has consistently been delivering high double-digit same-store sales for some time now, easily outpacing competitors such as Coach (NYSE: COH  ) and Polo Ralph Lauren (NYSE: RL  ) . Now, it turns out that the Hong-Kong based company is not entirely immune to the traffic disease affecting many fashion retailers. With growth expected to slow next year, what's in store for the luxury lifestyle brand?

Growth story intact?
For a bit of historical perspective, Kors has beat on every single earnings report since it went public. Its third-quarter earnings per share, for instance, more than tripled to $0.64 from fiscal 2012 to 2013. For the third quarter of this year, analysts are calling for around $0.86, which would represent another healthy gain.

The latest report once again knocked it out of the park. Second quarter EPS came in at $0.71, beating the consensus by $0.03. I'll let some of the other numbers speak for themselves. Total revenue increased by around 39%, on a 23% increase in same-store sales. Gross profit was up 42.4%, and net income rose to $148.5 million from $97.8 million a year ago.

CEO John Idol was clearly happy with the results, and especially pleased about the company's European performance. In a tough market, the company managed to increase sales by 101% year over year on a 45% rise in comp store sales, which was mostly due to greater brand awareness in the region. As you know, there aren't many retailers posting figures like these.

However, things may now be slowing down. A bearish research note from Wedbush caused the stock to slump recently, Analyst Gabriella Santaniello citing slower-than-expected mall traffic and higher-than-expected promotional costs. Still, Wedbush maintains its outperforming rating on the stock. Regarding the full-year outlook, Kors is expecting same-store-sales growth of around 20%, which is considerably lower than last year's 40%, but still far better than the competition.

By comparison
Coach is widely regarded as one of Kors' prime competitors, and is in the process of transforming itself from a handbag company to a 'luxury lifestyle brand,' putting it in even more direct competition with Michael Kors. Coach has been delivering some fairly disappointing growth figures lately, and nowhere near those of Kors.

Its first quarter EPS of $0.77 beat by a penny, and revenue for the quarter was down 1%. However, on a constant currency basis, sales were up around 2%. The company's North American performance was fairly grim, same-store-sales fell 6.8%, while Chinese operations continue their solid performance with a 35% total sales increase.

Ralph Lauren's overall growth numbers are a little better. Its third-quarter net revenue was up 3%, and comp store sales were up about 1% on a constant currency basis. Operating income and net income weren't quite as encouraging, as retail operating income fell a somewhat worrying 14% and net income down 4%. Still, the company raised its full-year revenue outlook, as well as the dividend, citing growing worldwide momentum and solid Australia/New Zealand operations.

The bottom line
Michael Kors' impressive growth still appears to be very much intact, although not reaching the pace it achieved last year. For most retailers, a 20% same-store-sales increase would be a dream. For Kors, it represents a fairly steep decline. In any case, the company is still easily outperforming the competition, and looks well positioned to maintain that good work.


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