When it held its IPO in November 2013, Vince Holding (VNCE -0.98%) was seen as a Michael Kors (CPRI -1.70%) wanna-be. For years now, Michael Kors has been the envy of the fashion world with its astronomical growth and steadily climbing stock price. To many, Vince Holding was just another pretender hoping to get in on the Michael Kors action. Interestingly enough, that is no longer the case. Vince Holdings, in its latest earnings report, proved itself to be a winning organization in its own right. Given the company's exceptional results, is it time Wall Street started giving Vince Holding the respect it deserves?
The quarter could not have gone better
For shareholders in Vince Holding, the first quarter could not have gone better. Not only did Vince Holding experience growth across the board, the company projected a very optimistic outlook for the rest of the current fiscal year with the launch of new collections to complement the brand's ongoing expansion, long-term strength, and future success. To start, net sales increased by 32.4% to $53.5 million from $40.4 million in the first quarter of fiscal 2013. If that wasn't enough, comparable sales also increased by 11.1%, which means each of the company's stores that have been open for at least 12 months increased their sales on average by 11%.
In addition, Vince Holding managed to earn a profit in the first quarter of fiscal 2014 of $0.04 per diluted share, or $1.4 million. In the first quarter of fiscal 2013, Vince Holding suffered a net loss of $15.1 million, or $0.58 per share, due to one-time transition costs and other business-related expenses associated with its IPO at that time. Adjusting for these one-time charges, Vince Holding actually earned just $0.1 million in the first quarter of fiscal 2013. To sweeten the pot and turn more heads on Wall Street, Vince Holding announced its guidance for the full fiscal year, which created even more excitement.
Excitement on the Vince Holding runway continues
Following the release, Vince Holding shares rose by more than 18%, closing at $33 per share as investors cheered the company's stellar first-quarter performance and promising outlook for fiscal 2014. The Vince Holding CEO commented on the company's progress and brand development with this statement:
Our apparel business remains solid, our licensed women's footwear business is gaining momentum and next month we will launch children's wear and men's footwear, both new licensed categories. We are also making progress on several operational improvement initiatives that we expect will drive additional gross margin rate expansion during the remainder of fiscal 2014.
In addition to the company's brand expansion, Vince Holding announced plans to open seven to eight new retail stores by the fiscal year's end. Furthermore, the company raised its full-year EPS guidance to $0.88-$0.92 from $0.85-$0.90. In addition, it projected net sales between $325-$340 million and a comparable-sales increase in the high single digits or low double digits at best. With this guidance in mind, is it possible that Vince Holding is the real deal?
Good but not good enough
Despite delivering a solid performance for the first quarter, Vince Holding is still trailing far behind Michael Kors. While both contemporary lifestyle brands' designs are creating quite the buzz among consumers, Michael Kors's designs are blowing Vince Holding's sales out of the water. Michael Kors is not only expanding much faster, it is also much larger than Vince Holding. Michael Kors reported its fourth-quarter earnings one week before Vince Holding reported its first-quarter results, and the results for both fashion designers are listed in the charts below.
13-Week Period ended March 29, 2014 for Michael Kors
|
Net Sales FY 2013 |
$597.2 Mil. |
|---|---|
|
Net Sales FY 2014 |
$917.5 Mil. |
|
Net Sales Growth |
53.6% |
|
Net Income FY 2013 |
$101.1 Mil. |
|
Net Income FY 2014 |
$161.0 Mil. |
|
Net Income Growth |
59.2% |
13-Week Period Ended May 3, 2014 for Vince Holding
|
Net Sales FY 2013 |
$40.4 Mil. |
|---|---|
|
Net Sales FY 2014 |
$53.5 Mil. |
|
Net Sales Growth |
32.4% |
|
Net Income FY 2013 |
$(15.1) Mil. |
|
Net Income FY 2014 |
$1.4 Mil. |
|
Net Income Growth |
- |
*Adjusted
Clearly, Michael Kors is the fashion designer to beat.. In addition, Michael Kors has managed to grow its revenue and profit by leaps and bounds compared with Vince Holding despite Michael Kors's larger size. For now, Vince Holding is still years away from catching up to Michael Kors. Put simply, it may never catch up to Michael Kors.
In addition, if you were to look at Vince's valuation as a stock, you would be surprised as to how Wall Street is valuing these two companies. Shares of Vince are currently trading for just under $35 a share as of the market close on June 13, while shares of Michael Kors are currently valued at just under $94 a share. For the current fiscal year ending in January 2015, Vince is expected to earn $0.92 per share whereas Michael Kors is currently expected to earn $3.97 for its fiscal year ending March 2015. What these numbers mean is that the faster growing Michael Kors possesses a Price/Earnings ratio of just 23.7 while Vince Holdings trade for an astronomical 38 times earnings. To put it simply, investors are paying a high price for lower quality merchandise.
Foolish takeaway
Foolish investors should consider making Vince Holding part of their portfolios only with the company's performance in perspective. Its latest results showed that the company is not just a passing fad, it might just be the real deal. The company more than likely adds luster to any portfolio, but investors shouldn't get overly excited. Vince Holding isn't the only high-growth fashion brand out there. Furthermore, any investment in the company needs to be kept in perspective.
