This Extraordinary Performer Is Stealing the Show

Here are a few reasons why Michael Kors could be a great pick for your portfolio.

Mar 11, 2014 at 12:33PM

While consumer spending in the U.S. increased 0.4% in December, consumer confidence slipped to 81.2 in January from 82.5 in the previous month, according to the University of Michigan index. Hence, luxury retailers experienced weakness in demand which led to lackluster performance. However, this was not the case for premium retailer Michael Kors (NYSE:KORS) which was totally unaffected by the dent in consumer confidence.

In fact, Michael Kors seems to be enjoying a rise in consumer spending with each passing quarter. Its recently reported third quarter was a blockbuster and the results were way beyond analysts' expectations.

The extraordinary
If a person gets a chance to choose from a variety of exclusive handbags that cost less than those from other companies, what decision will she make? Obviously, go for it. This is exactly what has happened with people in the U.S. and Europe. Michael Kors' products such as watches and handbags have witnessed great demand, which has driven the company's revenue north. Its revenue for the quarter grew an unbelievable 59% to $1.01 billion to cross the billion-dollar mark for the first time. Also, its bottom line jumped 77% as earnings reached $1.11 per share.

The growth was not only driven by the 98 new stores added in the last twelve months, including 43 openings during the quarter, but also by same-store sales growth of 28%. This shows how the company's offerings are attracting customers. Not only did the retail segment perform well, wholesale segment sales also increased by 68% to $461 million as demand for footwear and accessories surged.

The secret of success
Along with factors such as attractive products at competitive prices which lured customers, there are other reasons why Michael Kors has become so popular. One of the primary reasons for its growth has been its marketing efforts as the company has made advertisements and told customers about its offers via mail. Well-promoted holiday offers lured customers to its stores, boosting the retailer's top line. Also, Michael Kors' efficient and on-time deliveries have also proven beneficial.

In contrast, other industry players are finding it extremely difficult to bring customers into their stores. One of the company's biggest rivals, Coach (NYSE:COH), seems to be suffering the most as it has been witnessing declining sales. Its last quarter too was a lackluster one as revenue dropped 6% from the year-ago period to $1.4 billion. Same-store sales too fell 13.6% as the luxury retailer saw declining handbag and accessories sales in North America. The decreasing store traffic not only came because of lower consumer confidence, but also because customers shifted to Michael Kors' stores. However, sales in China were a relief for Coach as they grew by 25% during the quarter, which enabled the company to open 10 new stores in the region.

Michael Kors has been eating away at Coach's customers, which is also reflected in the stock prices of both companies. The stock price changes of the two companies as well as another player, Ralph Lauren (NYSE:RL), are given in the chart below:

KORS Chart

KORS data by YCharts

Michael Kors went public in December 2011 and since then its stock price has appreciated by 257.6%. On the other hand, Coach's stock price has fallen 21.9%.

However, Ralph Lauren's stock price increased by 14.9% over the same period, mainly because it has made moves such as designing uniforms for the Sochi US Winter Olympics team. Also, Ralph Lauren reported a decent quarter with a top-line increase of 9% and bottom-line growth of 11%. In fact, the growth was achieved across both the retail and wholesale segments as the company opened new stores. This also enabled the premium retailer to raise its annual revenue guidance to 7% from 5%-7% earlier. Despite such a remarkable performance Ralph Lauren failed to outpace Michael Kors.

Holding up 
In addition to its continuous strong performance and the great returns received by its investors, Michael Kors has given us more reasons to believe in it. It has successfully outpaced other players in the industry with the help of its tempting products and great marketing strategies. After becoming very popular in the women's handbags and accessories segment, the retailer now plans to expand its offerings to men.

Michael Kors expects to grow its men's division to $1 billion, which will make the contributions from both men's and women's products equal. Hence, it plans to launch a men's fragrance which it will promote heavily. Additionally, it introduced a new men's collection recently which is expected to bring in more customers. These efforts should help the company enhance and strengthen its presence in the retail space.

Obvious conclusion
There are no doubts about the luxury retailer's performance. Michael Kors has been one of the most remarkable retailers as it has managed to post extraordinary numbers while others were striving for growth. Moreover, it has not stopped there. Its plan to capture the men's division and bring it to par with its existing female division looks quite lucrative. I find no reason to stay away from this sparkling retailer.

Does that make Michael Kors the Fool's favorite growth stock?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Pratik Thacker has no position in any stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information