'Luxury For Less' Lifts IBD 50's Kors And Kate Spade

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Nobody likes being duped. But in the world of fashion, "dupes" mean coveted products that look and feel like consumers' favorite high-end brands, at a fraction of the price.

The "accessible luxury" market -- led these days by the likes ofMichael Kors ( KORS ),Kate Spade ( KATE ) and breakout brandVince Holding ( VNCE ) -- is thriving partly because companies in it have succeeded at creating the look and feel of luxury without the five-digit price tags.

Kate once offered quilted bags that mimic (but don't counterfeit) Chanel, Kors has sold brown-and-tan logo bags that look like Louis Vuitton at a glance, and all manner of midtier brands have tried to make bags inspired by the iconic Hermes Birkin.

Vince, a master of slouchy knits, doesn't sell logowear. But the apparel company recently hired Natalie Ratabesi as its new creative director of women's design. Her previous handiwork at high-end fashion houses Dior, Gucci and Oscar de la Renta will hopefully trickle down into the brand's women's wear.

So far, consumers have flocked to these aspirational brands, which have garnered followings as they also create unique luxury designs of their own.

Vince Advances

Vince, which went public in November, reported that it earned 4 cents per share last quarter, beating analysts' break-even views. Revenue rose 32% to $53.5 million, slightly topping estimates. Vince stock has now risen 89% from its IPO price of 20.

"We believe Vince remains one of the best growth stories in apparel retail today," said William Blair analyst Amy Noblin in a note. "Over the long term, we believe that Vince is an emerging global lifestyle brand poised for sustainable long-term 20%-25% bottom-line growth."

With $60 tees and $225 crewneck sweaters, the company does well with what some call "luxury basics," a muted, apparently brandless apparel style that has found footing in recent years, evocative of top-tier premium brands such as Bottega Veneta and its logoless basketweave bags. Other high-end brands such as Gucci and Louis Vuitton have pulled away from prominent branding designs at the higher end of their own product lines, amid a flood of G- and LV-covered purses on the street, particularly as they've gained traction in markets overseas.

"Demand from emerging markets made the monogram so ubiquitous, however, that it is now a symbol of accessible luxury rather than exclusivity," said luxury-market research firm Ledbury Research.

Kors And Kate Build

Kate Spade last year sold Juicy Couture, known for velour tracksuits and bling, to Authentic Brands Group and is winding down the once-popular Juicy business this year.

Kate Spade sales soared 33.5% last quarter to $328 million and its namesake brand leapt 54%. The company reported an adjusted loss of 6 cents a share vs. year-ago loss of 16 cents a share.

Kate Spade stock has risen 19% for the year to date. In a May research note, Sterne Agee analyst Ike Boruchow called the company "one of the most attractive long-term growth stories in retail today."

"While we expect KATE to generate just $0.22 of EPS this year, we believe the company will experience very rapid bottom-line growth from here," said Boruchow. "The primary growth driver will likely be door growth, as the company can grow footage at a 15%-20% clip (or higher) over the next 5 years, with expansion both domestically and overseas."

Michael Kors sales surged 54% to $917.5 million in its March quarter as EPS jumped 56% to 78 cents. The stock has risen 10% this year.

The handbag maker has enjoyed immense popularity for its leather purses and accessories. Arguably the "It" bag brand for now, its only risk is in peaking and fading away, as accessible-luxury pioneerCoach ( COH ) is fighting to avoid.

"All in, KORS' top-line momentum can't be denied, but with margins potentially peaking, there are fewer ways to win going forward," said Sterne Agee's Boruchow in a May research note.

Coach Drops Guidance

Leather-handbag maker Coach is trying to engineer a turnaround, slashing third-party events and flash sales and moving to semiannual sales, to counter its image of being too accessible a brand. Coach's Q3 earnings slid 19% vs. a year earlier to 68 cents a share. Revenue declined 7% to $1.1 billion, and North American same-store sales plunged 21%.

Hopes are pinned on an upcoming fall collection by new executive creative director Stuart Vevers, although analysts think the turnaround will take at least a year or two to cement. During a company-held analyst day on Thursday, Coach lowered its guidance, projecting low-double-digit revenue decline and a high-teens same-store sales percentage decline in North America for fiscal 2015.

Shares dropped 9% at the news Thursday, leaving the stock down 36% this year.

Despite risk of getting too-accessible and losing luxury cachet, even within the aspirational market offering a lower tier of product helps pull in more consumer cash. Michael by Michael Kors and Kate Spade Saturday are both less expensive lines of the flagship brands.

High-End Home Brands

Premium home-goods brands such asWilliams-Sonoma ( WSM ) andRestoration Hardware (RH) have been trying a similar strategy.

"Restoration Hardware is aimed at the upper end of the market. But what's interesting is that our pricing analysis shows that their entry-level products are more affordable than many Americans perceive," said KeyBanc Capital Markets analyst Bradley Thomas.

While prestige-reaching consumers may not yet be able to afford Restoration's $5,000 to $6,000 sectional sets, many are still able to swing $1,695 for a sofa that lets them feel a little more luxurious.

Restoration Hardware Q1 revenue rose 21.5% to $366.3 million and earnings tripled to 18 cents a share from 6 cents a share the same quarter a year earlier.

The spectrum of brands under Williams-Sonoma's umbrella, including Williams-Sonoma Home, Pottery Barn and West Elm, have also helped it to appeal to a wider range of customers. Trendy West Elm, in particular, appeals to younger 20-somethings who have graduated from do-it-yourself IKEA furniture but can't yet afford a $4,500 settee from Williams-Sonoma Home.

"Similar to the prior three quarters, the strongest comp was at the West Elm brand, which is benefitting from collaborations with designers and artisan partners," said Wells Fargo analyst Matt Nemer. West Elm showed the best comparable brand revenue growth at 18.8%, according to its quarterly report.

Williams-Sonoma Q1 revenue rose 9.7% over the year to $974.3 million, and earnings rose 17% to 48 cents a share.

"WSM is on to something that other retailers only dream of -- 'omni-channel' harmony," said Wolfe Research analyst Aram Rubinson in a note, meaning that the company has had success reaching consumers through a variety of outlets, including brick-and-mortar stores and online retail.

"Style and price points are driving the success of the brand," said KeyBanc's Thomas.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: KORS , KATE , VNCE , COH , WSM

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