Michael Kors (NYSE:CPRI), Coach (NYSE:TPR), and Tiffany & Co. (NYSE:TIF) are three of the largest companies in the luxury goods industry. With the holiday season's arrival, investors need to be more careful than ever about buying or holding consumer goods companies. This is the make-or-break period for the industry, so it is crucial to view the guidance and plans in place that will maximize sales. Let's take a look at recent earnings reports and conference calls to determine which of these retailers investors should be most bullish on going into this important shopping season.
The earnings reports
On Nov. 5, Michael Kors released second-quarter results for fiscal 2014. Here's an overview of the results and a year-over-year comparison:
|Earnings Per Share||$0.71||$0.68|
|Revenue||$740.30 million||$725.91 million|
- Earnings per share increased 44.9%.
- Revenue increased 38.9%.
- Comparable-store sales rose 22.9%.
- Gross profit increased 42.4% to $449.9 million.
- Gross margin expanded 150 basis points to 60.8%.
Coach released first-quarter results for fiscal 2014 on Oct. 22. Here is an overview with a year-over-year comparison:
|Earnings Per Share||$0.77||$0.77|
|Revenue||$1.15 billion||$1.19 billion|
- Earnings per share were even at $0.77.
- Revenue decreased 1%.
- Comparable-store sales decreased 6.8%.
- Gross profit decreased 2.2% to $826.57 million.
- Gross margin decreased 100 basis points to 71.8%.
The last of the three to report was Tiffany, which released third-quarter results on Nov. 26. Here's a summary of the report with a year-over-year comparison:
|Earnings Per Share||$0.73||$0.58|
|Revenue||$911.50 million||$889.38 million|
- Earnings per share increased 49%.
- Revenue rose 6.9%.
- Comparable-store sales grew 7%.
- Gross profit increased 11.9% to $519.48 million.
- Gross margin expanded 260 basis points to 57%.
What does management think?
An earnings report tells a great story about what happened over the last three months, but the conference call that follows provides the story that matters. A conference call can offer a forum for management to gloat or brag about a successful quarter, or a one in which they can try to calm investors or make excuses for what went wrong. Let's take a look at the two most notable comments made by each management team regarding the quarter and future outlook:
"Overall, we continued to see great demand from the Michael Kors brand, a strong acceptance of the fashion luxury products created by Michael Kors and our design teams, and excitement for our unique jet-set in-store experience that we offer to our customers. We believe the Michael Kors brand has significant growth potential over the long term."
-- CEO John Idol
"We have solid momentum as we head into the holiday selling season in the back half of the year. We believe that 2014 will be another record year for the company as we continue to expand the Michael Kors luxury lifestyle brand globally."
-- CEO John Idol
"Starting with product [performance]... we continue to feel pressure in our North America business in traffic in our retail stores impacting women's handbags and accessories."
-- President of N.A. Retail Francine Della Badia
"While we are encouraged by the initial iterations of our transition to a lifestyle brand, we have recognized that the full reflection of this positioning is part of a multi-year journey. In addition, the retail environment remains challenging with soft mall traffic and volatility in consumer sentiment."
-- CFO Jane Nielsen
"...[T]he third quarter was another good one for Tiffany and we believe we are well positioned for the holiday season. We have pursued an active pace of store expansion this year, which includes adding a net of 14 stores in 2013. We've introduced several exciting and well-received new jewelry collections and we've enhanced our marketing communications."
-- COO James Fernandez
"We are pleased to report a very solid quarter with a healthy rate of worldwide sales growth and a faster rate of earnings growth... We're excited about the sales growth potential for Tiffany in the Middle East to enhance brand awareness and expansion of our store and customer base."
-- VP of Investor Relations Mark Aaron
I believe Michael Kors had the best conference call of the three because it focused on the numbers and growth the company expects this holiday season. Tiffany's was also very positive, but it was more of a recovery story than a continuing success like Michael Kors. Lastly, Coach's call may as well have had the theme song of Titanic in the background, as it seems to be a sinking ship in the luxury-goods ocean.
And the winner is...
When factoring in the latest earnings report, comments by management about company status, and guidance for the upcoming quarter, Michael Kors is the big winner. Both Michael Kors and Tiffany reported incredible results and pointed toward continued strength, but Kors has been more consistent over the last four quarters. I believe Kors has the best growth prospects in the industry and is the best value play, even while it sits near its 52-week high. Coach, on the other hand, has been a serial disappointment and should be avoided no matter how "cheap" the stock becomes.
The Foolish bottom line
Michael Kors, Coach, and Tiffany make up a three-headed luxury-goods giant. These companies are great indicators of the strength of the consumer, even though Coach has stumbled quite a bit over the last few quarters. Michael Kors and Tiffany both reported blowout numbers in their most recent reports and would be great investments on any weakness going forward. Watch these two companies closely and decide if your portfolio could use a luxurious addition.