Can Michael Kors Keep Its Winning Streak Alive?

A lot has been said about who can be pleased how often, but the truth of the matter is, you can please some of the people some of the time and all of the people never. In fashion, that's an important point, because when they try to please all of the people, apparel brands often just end up pleasing no one. A great current example is Coach (NYSE: COH  ) , which has fallen on hard times after trying to grow its core business, new men's line, and international brand all at the same time.

Two brands have managed to avoid the trap of pleasing everyone by focusing on their main audiences. Michael Kors (NYSE: KORS  ) and Kate Spade (NYSE: KATE  ) have put up strong sales growth while expanding their range into markets consistent with their core demographic. Will that success continue or will the whims of fashion and the extension of the brands lead to investor heartbreak?

Kate and Kors on the growth track
Expansion is difficult. It's easy to get ahead of yourself, overextend, and end up losing more than you stood to gain in the first place. Coach was riding a solid return to the market in 2012 when it decided to make the leap into the world of men's apparel. By the middle of the year, North American sales -- what you might call the "core" of the business -- had slowed to a crawl.

By contrast, Michael Kors and Kate Spade have yet to hit the wall. Kors' comparable-store sales rose 27.8% in its last quarter  while Kate Spade's sales were up 30%. Michael Kors has been running rampant across the countryside like a band of stray dogs -- if those dogs were opening high-end stores as they ran. Over the last year, the company has increased its number of locations by over 30%, now operating almost 400 locations.

Meanwhile, Kate Spade has increased its store count by almost 40% over the last year. That's helped the former Fifth & Pacific shed its other brands and live off the success of Kate Spade alone. The company dropped Juicy Couture and Lucky Brand -- both having fallen from the "hot list" -- over the course of the last year.

The ups and downs of fashion
The danger for both Michael Kors and Kate Spade is that the companies now exist on the strength of one brand alone. Kors has always been a one-man show, but it's also been the biggest name in the game for years. Tory Burch has been surrounded by IPO rumors recently and an influx of cash for her brand could lead to plenty of new pressure on Kors.

Kate Spade is now free from the Juicy shackles, but the brand is expanding into a slightly lower market in an attempt to diversify a bit. Kate Spade Saturday is Kate Spade's answer to the younger, less affluent shopper. The idea is to get customers into the Kate Spade mind-set early on so that when they can afford more expensive pieces, they already have positive associations with the brand.

The bottom line
What it comes down to for investors is simple: Will Kors continue to be popular? The danger is that it gets overtaken by someone like Tory Burch, but that move is still a ways off, if it even happens. By that time, Kors should have the opportunity to move into more international markets, keeping itself one step ahead of Burch.

For now, Michael Kors continues to look like the dominant player in high-end apparel. Its expansions aren't hurting its core business and it has a clear path to future success. While Kors' stock is by no means cheap, I can't imagine that it's going to produce any nasty surprises in the near future.

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