Michael Kors' Worldwide Expansion Pays Off

Michael Kors (NYSE: KORS  ) has grown into one of the most popular brands in the world over the last few years. As demand for its products grew the company added locations in more luxury markets, but it has come to the point where Michael Kors cannot seem to expand fast enough. Let's take a look at the number of stores added to-date in fiscal 2014 and what the current expansion plans call for, as well as what this could mean for investors.

Source: Michael Kors' Instagram page

A strong year so far
In order to take full advantage of its growing popularity, Michael Kors has been expanding into as many markets that demand its products as it can. Here is a breakdown of the number of stores the company added during the first three quarters of fiscal 2014:

Quarter Stores Added
First Quarter 42
Second Quarter 35
Third Quarter 56

Of the 133 stores the company added over these last three quarters, 91 are company-owned and 42 are licensed stores; this brings Michael Kors' total store count to 533, of which 395 are company-owned and 138 are licensed. This expansion played a key role in driving the company's record results in the third quarter, as its earnings per share increased 73.4% to $1.11 and its revenue rose 59% to $1.01 billion. The primary driver behind Michael Kors' incredible performance was the 27.8% increase in comparable-store sales, which shows the immense customer traffic generated by its stores.

Many more stores to come
The expansion to-date is just a small portion of Michael Kors' master plan. Store count should easily exceed 575 by the conclusion of fiscal 2014. Over the next few years, Michael Kors expects to grow its company-owned store count to over 700 globally; this would likely bring its total store count to around 1,000 including licensed locations. 

Source: Author

The fact that the company is focusing on opening company-owned locations is a major plus for investors; this is because the company-owned locations generate more profit by selling directly to consumers, which has a positive effect on the company's earnings. Some companies prefer licensing to maximize their growth since the cost of opening each store and stocking its inventory is passed on to the licensee. However, with the strength of the Michael Kors brand, the company takes on little to no risk by making the initial investments itself. 

A world of demand
The beauty of the Michael Kors brand is that it is not only demanded in the United States, it is demanded across all of the world's luxury markets. The company expects to have over 400 company-owned stores in the United States alone within a few short years, which will keep the nation as its largest market. However, Europe and Asia will likely see their store count double during that same time period. This can be seen in Michael Kors' earnings growth by region in its billion-dollar third quarter:

Region Q3 2014 Q3 2013 Growth
North America $862.62 million $573.12 million 50.5%
Europe $140.29 million $57.6 million 143.6%
All other regions $9.32 million $6.06 million 53.8%

Considering the number and overall size of the luxury markets in North America, Europe, and Asia, I believe we could see over 500 company-owned locations in each of these regions by 2020; 500+ locations would propel Michael Kors' revenue to well over $1 billion per region each quarter, which would result in immense price appreciation in the stock; shares could easily double or even triple from where they are today. All of this together would lead to Michael Kors becoming one of the most powerful global brands among all industries.

Source: Michael Kors' Instagram Page

Beneficiaries of Michael Kors' growth
Michael Kors will expand as quickly as possible, but it will never be able to open a store in every market where there is demand, especially in the United States. This is where large department stores that carry Michael Kors' products, like Macy's (NYSE: M  ) and Dillard's (NYSE: DDS  ) , will continue to play huge roles. Macy's currently operates 840 stores and 13 outlet centers in 45 states under the names of Macy's and Bloomingdales, and Dillard's operates 282 stores and 17 outlet centers in 29 states. 

Source: Fool Flickr Stream

I do not see a day where Michael Kors brings all of its sales in-house, so the brand should provide a constant stream of revenue for Macy's and Dillard's. Macy's is scheduled to report its earnings on Feb. 25 and Dillard's report should come shortly thereafter. After the strong results we saw from Michael Kors, I am confident that both department stores will be able to exceed expectations. If Michael Kors saw a 27.8% increase in comparable-store sales, it's likely that the Macy's and Dillard's stores in locations where there are no Kors stores will have seen sharp rises in customer traffic. It is always better to go with the company in focus rather than derivative plays, but Macy's and Dillard's are great companies on their own so the buying case for them can be made from several angles.

The Foolish bottom line
Michael Kors dominated the luxury market in 2013 and 2014 is gearing up to be another one for the record books. Expansion has played a key role in its rise as a fashion powerhouse and it will continue to do so. I believe Michael Kors is a great fit for Foolish investors seeking high-growth, so if you do not own a piece of it, you should strongly consider initiating a position before the stock heads much higher.

3 More Great Stock Picks
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry, much like what we have seen in the rise Michael Kors. Our analysts have done it before with the likes of Amazon and Netflix, and now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2841301, ~/Articles/ArticleHandler.aspx, 10/24/2014 11:46:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement