Michael Kors (KORS +5.45%) is a lifestyle brand for "aspiring jet-setters" and a growing luxury apparel & accessories wholesale and retail company. It continues to attract customers across the globe. The company's product portfolio is diverse, as no single segment generates more than 30% of its revenue.
Kors has done really well lately, and its stock has appreciated more than 40% as compared to the S&P 500's gain of 18% year-to-date.
Opportunity ahead
The worldwide luxury goods market continues to see double-digit annual growth and is currently valued at over $260 billion, according to Bain & Company. It is estimated that the worldwide luxury goods market will grow about 50% faster than the GDP, with 4% to 5% average annual growth through 2015.
Michael Kors is a renowned player in the luxury apparel & accessories and footwear space, and it has done well to ride the industry trends. Its same-stores-sales improved 27% in the previous quarter, and revenue was $640.9 million. This was 54.5% more than the same quarter a year ago and it exceeded Street expectations of $572 million. Gross profit jumped 58.3% to $397.3 million and the company recorded earnings of $0.61 per share, beating consensus estimates by 24.5%.
Michael Kors opened 75 new stores and operated 114 additional retail stores through licensing partners in order to attract more shoppers. Globally, the company operated 442 stores at the end of the first quarter of fiscal 2014.
A look at competition
China's clothing industry is set to become the world's second largest by 2020 and will account for approximately 30% of the global fashion market's growth over the next five years. The Chinese apparel market is estimated to grow at a CAGR of 7% through 2016. But in China, Michael Kors' rival Coach (COH +3.42%) has a bigger presence. Kors is planning to expand in China in order to compete effectively against Coach.
Kors plans to open 100-125 stores in China in the next few years as it looks to catch Coach, which has more than a 100 stores currently. Kors' online strategy also seems to be paying off, as it was the most sought-after American brand in China according to the Digital Luxury Group.
On the other hand, Coach registered an increase of 10% in its international business in the previous quarter, with sales in China jumping 35%, including a double-digit increase in comparable-store sales. Globally, Coach is looking to increase its retail square footage by 9% in 2013. Going forward, the company is very optimistic about its unisex Legacy lifestyle collection, men's-only stores, and international growth opportunities as macroeconomic conditions improve.
G-III Apparel (GIII +3.36%) is another Kors competitor. It has a strong portfolio of 30 licensed brands, marketing apparel, outerwear, beachwear, luggage, women's handbags, small leather goods and accessories, to name a few items. The company sells its offerings of apparel under popular brand names like Andrew Marc, Jessica Howard, Calvin Klein, Levi's, Tommy Hilfiger and more.
G-III recently announced that it would be joining hands with MLB to revive the Starter Statin jacket franchise. G-III is also looking at acquisitions and mergers as a route to diversify for the future.
But one of the biggest risks with investing in G-III is that 63.7% of its 2013 revenue came from its 10 largest customers. For example, Macy's provided 16.8% of G-III's sales in fiscal 2010, which increased to 18.7% in 2012 and now accounts for one fifth of revenue.
Conclusion
Michael Kors has performed well, and the company has room to grow further as there is a lot of opportunity in the fashion retail market. Also, the company is trying to move into the space of competitors such as Coach in China, which is expected to be a high-growth region going forward. So even after its solid performance this year, Michael Kors looks good for more.
