Coach (TPR 1.50%) and Michael Kors (CPRI -3.04%) are two of the most well-known designers and retailers of luxury handbags and accessories in the world. Both have recently released earnings results for their respective quarters. Let's compare the companies' results and outlooks on the quarters ahead to determine which had the better quarter and could provide the highest returns for investors going forward.
Breaking down the quarterly reports
Source: Coach
On April 29, 2014, Coach released its third-quarter report for fiscal 2014 and the results were mixed compared to analysts' expectations; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $0.68 | $0.61 |
| Revenue | $1.10 billion | $1.13 billion |
Source: Benzinga
- Earnings per share decreased 19%
- Revenue decreased 7.4%, including:
- North America: 18% decrease
- International: 14% increase
- Comparable-store sales data:
- North America: 21% decrease
- China: "double digit" increase
- Gross profit decreased 11.2% to $781.3 million
- Gross margin contracted 300 basis points to 71.1%
- Operating profit decreased 24.6% to $262.7 million
- Operating margin contracted 540 basis points to 23.9%
- Opened 10 net new stores in China, Japan, and Europe and had 15 net closures in North America and Asia-Other during the quarter, bringing its total store count down to 1,011.
Source: Michael Kors' Facebook
Michael Kors released its fourth-quarter report on May 28 and the results exceeded analysts' expectations on both the top and bottom lines; here's a breakdown and year-over-year comparison:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $0.78 | $0.68 |
| Revenue | $917.45 million | $816.67 million |
Source: Estimize
- Earnings per share increased 56%
- Revenue increased 53.6%, including:
- North America: 43% increase
- Europe: 125.3% increase
- Other Regions: 88.5% increase
- Comparable-store sales data:
- Globally: 26.2% increase
- North America: 20.6% increase
- Europe: 62.7% increase
- Gross profit increased 54.2% to $549.4 million
- Gross margin expanded 20 basis points to 59.9%
- Operating profit increased 58.3% to $245.9 million
- Operating margin expanded 80 basis points to 26.8%
- Opened 22 new stores during the quarter, bringing its total store count to 555 worldwide.
What should we expect going forward?
Source: Coach
Coach does not participate in the practice of providing financial guidance for future periods, so we will use the consensus analyst estimates as the basis for what we can expect in the fourth quarter; here are the current estimates:
| Metric | Q4 2014 Expected | Q4 2013 Actual |
|---|---|---|
| Earnings Per Share | $0.54 | $0.89 |
| Revenue | $1.11 billion | $1.22 billion |
Source: Estimize
These estimates call for earnings per share to decrease 39.3% and revenue to decrease 9% compared to the same period a year ago. Also, it is worth noting that if these estimates are accurate, they would result in earnings per share declining 18.2% and revenue declining 5.9% for the full year when compared to fiscal 2013.
Source: Michael Kors
Following its strong fourth-quarter results, Michael Kors provided its outlook on fiscal 2015 and it predicts a record-setting performance; here's a summary:
| Metric | Fiscal 2015 Outlook | Fiscal 2014 Actual |
|---|---|---|
| Earnings Per Share | $3.85-$3.91 | $3.22 |
| Revenue | $4.0 billion-$4.1 billion | $3.31 billion |
Source: Michael Kors
This outlook calls for earnings per share to increase 19.6%-21.4% and revenue to increase 20.8%-23.9% for the full year compared to fiscal 2014. Michael Kors also provided its outlook on the first quarter of fiscal 2015, calling for earnings per share in the range of $0.78-$0.80 and revenue of $840 million-$850 million, which would represent year-over-year increases of 27.9%-31.1% and 31.1%-32.6%, respectively.
Source: Michael Kors
And the winner is...
After reviewing the companies' earnings results and outlooks going forward, the winner of this match-up is Michael Kors; it showed far better growth in every key financial category and its outlook on the first quarter and full year of fiscal 2015 calls for more of the same.
On the day of its earnings release, Michael Kors' stock rose 1.33%, but it has turned negative in the days since due to a few analyst downgrades; I believe the analysts who issued these downgrades will be very wrong in the long run, but this activity has created a buying opportunity.
Foolish investors should strongly consider initiating positions right now and adding to them on any further weakness provided by the market, because the long-term potential of Michael Kors far outweighs any short-term negativity.
