Michael Kors Keeps Booming: Time to Buy?

While Coach is trying to make a comeback and Kate Spade is delivering impressive performance, Michael Kors keeps proving that it's still the undisputed growth leader in the high-end fashion and accessories business.

May 30, 2014 at 8:15AM


Source: Michael Kors.

Michael Kors (NYSE:KORS) announced truly explosive financial performance for the first quarter of fiscal 2014 on Wednesday. Competitor Coach (NYSE:COH) will be trying to recover some ground over the coming months, while Kate Spade (NYSE:KATE) is becoming a relevant challenger to watch in the sector. However, Michael Kors looks strong enough to withstand the competition and continue growing at full speed in the years ahead.

Looking good
Total sales during the quarter ended on Mar. 29 increased by an impressive 53.6% to $917.5 million, comfortably above Wall Street estimates of $818.1 million in sales for the quarter.

Retail sales grew 49.7% to $408.4 million on the back of a 26.2% increase in comparable-store sales and 101 net new store openings during the year. Wholesale sales jumped 55.5% to $473.7 million and licensing revenues increased 79.1% to $35.4 million.

Sales in North America grew 43% versus the prior year, driven by a 20.6% increase in comparable-store sales. Europe was even stronger, with a 125% increase in revenues during the quarter and an extraordinary increase of 62.7% in comparable-store sales.


Source: Michael Kors.

Michael Kors delivered expanding profit margins during the quarter and gross profit as a percentage of sales increased to 59.9%, compared to 59.7% in the fourth quarter of fiscal 2013. Operating margin was 26.8% of sales, versus 26% of revenues during the same period in 2013.

Earnings per share came in at $0.78 per diluted share, a big increase of 56% versus $0.50 per diluted share in the same quarter during the prior year, and considerably better than the $0.68 per share forecasted on average by analysts.

Forward guidance was also above expectations. For fiscal 2015, Michael Kors forecasts sales to be between $4.0 billion and $4.1 billion, assuming a comparable-store sales increase in the high teens during the year. Diluted earnings per share are expected to be in the range of $3.85 to $3.91, which compares favorably versus analyst forecasts of $3.85 for the year.

Michael Kors opened 150 additional retail stores, including concessions operated through licensing partners, during the year. Including licensed locations, there are 555 Michael Kors stores around the world as of the end of the fourth quarter of fiscal 2014.

Michael Kors versus Coach and Kate Spade
The biggest risk for investors in Michael Kors is the always-changing and competitive landscape in the fashion business. While Coach is trying to make a comeback with its renewed collection over the coming months, Kate Spade is generating impressive growth lately.

Coach has overexpanded its store base, and excessive pricing promotions have diluted the company's brand value. In this context, Coach announced a worrisome decline of 7% in sales during the quarter ended on March 29. North America was a particularly dismal market for Coach during the period, as sales declined by 18% to $648 million in that region.

Coach's new creative director, Stuart Vevers, is working on reinvigorating the brand, and his new collection was introduced at New York Fashion Week in February. According to management: "The collection got a significant attention and the global press was uniformly positive bringing Coach into the fashion conversation."


Source: Michael Kors.

Coach's new collection will be reaching stores in September, and investors in Michael Kors should monitor customer reaction and sales performance in order to evaluate if Coach has any chances of recovering some of the ground it has lost over the last few years.

Kate Spade is materially smaller than both Coach and Michael Kors, but it is generating remarkable performance in its main Kate Spade brand division. Total sales from continuing operations in the first quarter of 2014 came in at $328 million, an increase of 33.5% versus the first quarter of 2013.

The Kate Spade brand was particularly strong during the period, with revenues increasing 54% to $217 million. Average Kate Spade retail square footage, including concessions, was approximately 350 thousand square feet by the end of the quarter, a 42.2% increase compared to 2013. In addition, comparable direct-to-consumer sales of Kate Spade products increased 29% year over year.

Considering the impressive growth rates delivered by both Michal Kors and Kate Spade, it looks like there is enough room for the two companies to thrive in the high-end fashion and accessories industry. Still, Kate Spade is certainly not a competitor to disregard in the middle term.  

Foolish takeaway
Michael Kors is clearly firing on all cylinders and delivering impressive growth rates for investors. While Coach is trying to make a comeback and Kate Spade is a significant challenger to watch, it is consolidating its position as one of the most valuable and demanded brands in the affordable luxury segment. This trendy fashion company looks dressed for success.

The wereable computing revolution is here! This free report can show you how to profit from it
Apple recently recruited a secret-development Dream Team to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out... and some early viewers are even claiming its everyday impact could trump the iPod, iPhone, AND the iPad. In fact, ABI Research predicts 485 million of these type of devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Andrés Cardenal owns shares of Coach and Michael Kors Holdings. The Motley Fool recommends and 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers