Shares of Michael Kors Holdings Ltd (CPRI -1.91%) tumbled today after research firm MKM Partners initiated coverage on the stock with a sell rating. As of 11:14 a.m. EDT, the stock was down 5.8%.
Analyst Roxanne Meyer put a $26 price target on the fashion label's shares and said she didn't see the company matching the analyst earnings consensus this year or next. Currently, the average EPS estimate is $3.55 for this year and $3.65 for fiscal 2019, the following year.
Meyer explained the reasons for her sell rating: "Downside to comps and margins, in light of a slow infusion of innovation, changes to the merchandising and promotional strategy, over-exposure to wholesale, as well as our view that the operating margin is structurally headed lower."
It's no secret that Michael Kors has been struggling. Shares were flirting with a five-year low today following Meyer's report as she summed up all of the problems facing the brand. Comparable sales have plummeted as the company has overexpanded, and it said a month ago it would close 100 to 125 stores over the next two years. Declining traffic at malls and department stores has also pressured sales at retail partners like Macy's.
The company knows it needs to make its brand more scarce in order to regain cachet, but that's difficult in today's rapidly changing retail environment. I tend to agree with Meyer than Kors' troubles will continue.