Is Kate Spade the New Michael Kors?

Kate Spade (NYSE: KATE  ) is aggressively growing its brand and store base to better compete with the likes of Michael Kors (NYSE: KORS  ) and other high-end fashion retailers today. The luxury apparel retailer grew its square footage 42% worldwide in its latest quarter, opening 54 new Kate Spade stores in the period, including standout locations in Houston and Tokyo. It also grew sales by an astounding 54% to $217 million during the quarter.

This is reminiscent of Michael Kors in its early days as a publicly traded company. Flash back to 2012, when Kors saw its fourth-quarter revenue surge 58% to $380 million. Now it seems that Kate Spade hopes to follow in Kors' fashionable footsteps.

Outsize growth
Since going public in 2011, Kors has grown from a mere fashion-accessories chain into one of the world's most recognizable luxury lifestyle brands. Today, the Michael Kors brand is an international powerhouse whose stock has grown in value from $20 per share at its stock market debut to around $93 a share today. For those keeping score at home, that's more than a 300% gain. For investors, the question now is whether Kate Spade's stock can follow a similar trajectory.

Source: Kate Spade.

As far as market cap goes, Kate Spade's relatively small size, compared with rival Kors today, could make it attractive to growth investors looking to get into the name before the stock hits it big with institutional investors. Kate Spade currently has a market cap of $4.6 billion, compared with $18.9 billion for Michael Kors. Formerly known as Fifth & Pacific, the multinational apparel company recently sold its Juicy Couture and Lucky Brand jeans businesses to focus entirely on its Kate Spade brand.

The fashion house now plans to open 80 additional Kate Spade stores before the end of the year, which would bring its total store count up from 225 today to 305 by 2015. Kors had 304 retail stores as of March 30, 2013. However, growing its store base won't be enough to fuel Kors-type momentum in its stock. Rather, it will take strong sales and earnings growth for shares of Kate Spade to become the next Kors stock.

Source: Kate Spade Saturday. 

Michael Kors, for example, grew its earnings per share a whopping 126% last year. Moreover, Kors has generated double-digit revenue and profit growth in each quarter over the past year. Nevertheless, Kate Spade's more affordable line of apparel and accessories, known as Kate Spade Saturday, could be the key to mimicking Kors' success. After all, much of Michael Kors' runaway success to date has come from the company's "Michael" selection of lower-priced apparel. In 2012, the Michael segment contributed around 90% of Kors' revenue, and it continues to drive considerable earnings growth for the company today.

For Kate Spade shareholders, its "Saturday" brand is exciting because it targets a younger audience and thereby broadens Kate Spade's consumer market. This approach has worked well for Michael Kors in the past, and I believe it will help drive revenue growth for Kate Spade as well in the quarters to come. The company opened its flagship Kate Spade Saturday store in Tokyo last March and is on schedule to open many more of these shops in the year ahead.

With shares of Kate Spade currently trading around $36 a pop, I think there's an opportunity here for patient investors to get in on this brand while its global growth story is still in the early stages.

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