Michael Kors Holdings Ltd Might Finally Be Ready for a Pullback

Another quarter, another solid beat from Michael Kors Holdings Ltd  (NYSE: KORS  ) .

Michael Kors shares fell this morning despite solid earnings.

The luxury goods-maker just announced fiscal fourth-quarter sales grew 53.6% year-over-year to $917.5 million, helped by stunning comparable store sales growth of 26.2%. That translated to a 63.5% increase in earnings per share to $0.78. Both figures easily exceeded analysts' expectations for earnings of $0.68 per share on sales of $816.15 million.

A chink in Michael Kors' armor
So, why did shares of Michael Kors promptly fall around 4% early Wednesday morning? Sure, the stock has since recovered, ending the trading day up over 1%. But that's a stark contrast to last quarter's enormous 17% post-earnings pop.

Why's that a bad thing? In short, it means Michael Kors' margins might finally be starting to contract. Don't get me wrong: It was bound to happen eventually, as earnings growth simply couldn't outpace Michael Kors' already impressive top-line increases forever. For the answer, look no further than Michael Kors' current quarter guidance. Specifically, management sees fiscal first quarter 2015 revenue in the range of $840 million to $850 million, which should result in earnings per share of $0.78 to $0.80. Analysts, on average, were modeling the same quarterly earnings of $0.79 per share, but on lower sales of $826 million.

Coach is pinning its hopes on Stuart Vevers this fall.

This also doesn't mean Michael Kors is a fledgling business. After all, it's apparent Kors is continuing to steal market share from its decades-old competitor in Coach (NYSE: COH  ) . And that trend is especially apparent in the key North American market, where Coach last quarter saw sales plunge 18% year over year to $648 million. By contrast, Michael Kors' North American revenue climbed 43% over the same period to just over $739 million.

What's an investor to do?
But investors are also paying a premium for all Michael Kors' current strength, with no dividend and shares priced at 25 times this year's expected earnings. Of course, even accounting for peaking margins, that premium may be well-deserved if the company can sustain anywhere near its past torrid rates of top- and bottom-line growth.

At the same time, keep in mind Coach shareholders are eagerly awaiting the September release of new creative director Stuart Vevers' debut collection, which has seen largely positive feedback from fashion critics and could turn consumers' attention back toward Coach's iconic brand. In the meantime, Coach investors are also collecting a hefty 3.3% dividend while woefully staring at its comparably minuscule forward P/E ratio of just 14.

In the end, investors should remember there's risk involved in holding shares of each company. For Michael Kors, keep an eye on whether both sales growth and margins see pressure going forward. For Coach, the success of Stuart Vevers' upcoming collection is paramount to returning to its former glory. All things considered, though, if you're fine with both risks and maintaining a long-term outlook, I see no problem owning both stocks.

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