Please ensure Javascript is enabled for purposes of website accessibility

Michael Kors Sells All of the Bags

By Andrew Marder – Feb 6, 2014 at 9:44AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's nothing in Michael Kors' path that's going to slow this beast down.

Sometimes what a business really does is obscured by the face that the business presents to the world. For instance, you might think the "pizza slices the size of your head" joint down the road sells pizza, but really it sells heartburn and regret. Similarly, you might think that Michael Kors (CPRI 1.46%) sells handbags and accessories, but really it just prints cash.

If you're in any doubt, just look at the company's most recent quarterly results. Revenue was up 59%, comparable store sales grew 27.8%, and earnings per share were up 73.4%. What?

Michael Kors is unstoppable
That's a little facetious -- every company is stoppable. Michael Kors is certainly on a tear, though. Investors have been riding the wave to excellent returns -- the stock is up 61% over the last 12 months -- and a positive outlook. Success has come from the brand's incredible strength and luxury factor.

You don't have to look any further than Coach (TPR -1.59%) to see where Kors is getting its business. The bettered retailer has seen its market share slip-slide away, with North American comparable sales falling 13.6%. You can almost imagine the swing that's happened here. A customer walks into the mall, mows through a Cinnabon, and walks right past the Coach store to the new Michael Kors location, where all their friends are shopping.

Kors is planning to keep the pedal pressed firmly down and is forecasting a comparable-store sales increase of between 15% and 20% in the next quarter. That would be the lowest increase the company has recorded yet, with the current low being 22.9% in the second quarter of fiscal 2013.

What's in store for Michael Kors
While the company seems to be on an undeniable run, it's not cheap to get in on the action. Kors is trading at 31 times its past 12 months of earnings. Coach is trading at just 13 times its earnings, but it's also suffering.

For the rest of 2014, Kors is on track to open four locations in North America and four in Europe. That should help open up the business, as right now Kors earns less than 15% of its revenue in Europe and 85% in North America.

Finally, I expect Kors will continue to outperform its estimates for comparable-store sales. The management team has been conservative in its forecasts, and there's nothing in Coach's lineup that suggests it's going to take any momentum back from Kors. At some point this year, Tory Burch might jump into the fray to shake things up, but that's still a ways off. For the foreseeable future, Kors is just going to keep churning out bills.

Editor's note: A previous version of this article listed Kors' P/E as 37, not 31. The Fool regrets the error.

Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Capri Holdings Stock Quote
Capri Holdings
$54.08 (1.46%) $0.78
Tapestry Stock Quote
$36.48 (-1.59%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.