Vince Holding: Solid Growth Does Not Make a Michael Kors

Vince Holding just reported strong fourth-quarter and full-year earnings, but this doesn’t mean it can touch Michael Kors.

Apr 9, 2014 at 5:17PM

On March 27, fashion designer Vince Holding (NYSE:VNCE) announced its fourth- quarter and full-year earnings for fiscal 2013. Net sales increased by 20% for the quarter and year. Along with its solid sales performance, Vince Holding also posted strong earnings growth versus the year prior.

As many will remember, Vince Holding held its IPO in late November; it sold 10 million shares and raised $200 million. Ever since the IPO, there has been hope that Vince Holding could be the next Michael Kors Holdings (NYSE:KORS), which held its IPO in late 2011; it raised $944 million and sold 47.2 million shares.

However, when Michael Kors was the size of Vince Holding, it was growing much faster than Vince Holding's current pace. Despite its recent performance, Vince Holding may not be capable of replicating the success Michael Kors has achieved over the years.

Recent results
Vince Holding is known for its fashionable cashmere sweaters, sleek leather jackets, and silk dress tops. It has caught the eye of shoppers and investors alike who believe Vince Holding can be the next Michael Kors. Vince Holding and its investors had much to brag about when earnings were reported. 

Highlights from the report include a 20.5% jump in fourth-quarter revenue to $87.8 million from $72.8 million in the year-ago quarter. In addition, quarterly comparable sales increased 12.2%. There was also a 21% increase in operating income and a 22.9% increase in gross profit compared to the same period in fiscal 2012. 

Fiscal 2013 was also a strong period for Vince Holding. For instance, the apparel designer generated $288.2 million in revenue, impressive growth from the year prior of 19.9%. If that wasn't enough, Vince Holding's comparable sales increased 20.6%. The company also had strong net income, which came in at $23.4 million versus $10.3 million last year. 

Long-term results 
Back in FY 2011 when Michael Kors held its IPO, it was still a much bigger company than Vince Holding. Michael Kors has been growing much faster than Vince Holding. To gain a better sense of how much faster, just look at the growth rates for revenue and net income for the past five fiscal-year periods.  

Michael Kors Holdings 

 

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

Net Revenue

$397.07 mil

$508.1 mil

$803.34 mil

$1.3 bln

$2.18 bln

Net Revenue Percentage Gain

-

28%

58.1%

61.8%

 67.7%

Net Income

$13.04 mil

$39.25 mil

$72.51 mil

$147.36 mil

$397.6 mil

Net Income Percentage Gain

-

201%

84.7%

103.2%

169.8%

Vince Holding 

 

FY 2010

FY 2011

FY 2012

FY 2013

Net Revenue

$111.49 mil

$175.26 mil

$240.4 mil

$288.2 mil

Net Revenue Percentage Gain

-

57.2%

37.2%

19.9%

Net Income

$0.05 mil

$16.7 mil

$10.3 mil

$23.4 mil

Net Income Percentage Gain

-

84.5%

(38.3)%

127.2%

The difference between the two companies is staggering. Last year alone Michael Kors managed to increase revenue by a staggering 67% over FY 2012. Vince managed to increase revenue by a much smaller (but still respectable) 20%. This trend goes back years and just goes to show why investors may need to pass by Vince Holding when looking for the next Michael Kors.

In FY 2011, a year where the two fashion companies experienced similar revenue growth, Michael Kors went on to maintain and even surpass its own growth figures. Vince Holding saw its growth rate fall back to earth. Clearly, Michael Kors is truly a special company, and Foolish investors ignore these figures at their own risk.

Foolish takeaway
Vince Holding held a successful IPO in late November with investors bidding shares up more than 40% versus the initial offering price of $20 a share. But the company doesn't appear to have the makings of the next great fashion brand.

 That being said, any business than can consistently grow at high rates, as Vince Holding has done, is worth a closer look by investors. Based on the information above, Vince Holding isn't a bad business and may very well be an interesting investment. Foolish investors just need to keep in mind that there is only one Michael Kors.

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Michael Kors Holdings. The Motley Fool owns shares of 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.

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