Michael Kors' Worldwide Expansion Pays Off

Michael Kors has been expanding rapidly over the last three quarters, while competitors like Coach have had trouble bringing customers into its existing locations.

Feb 20, 2014 at 4:00PM

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.

Screen Shot

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. 

Screen Shot

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:

RegionQ3 2014Q3 2013Growth
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.

Screen Shot

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. 

Screen Shot

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.

Joseph Solitro owns shares of Michael Kors Holdings. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers