Michael Kors Holdings, Ltd.
) reported its fourth straight quarter with a positive earnings
surprise in mid November, as fiscal second-quarter EPS surpassed
the Zacks Consensus Estimate by 22.5%. With strong brand portfolio,
an innovative fashion design and a potential long term growth rate
of 31.4%, this Zacks Rank #1 (Strong Buy) global luxury lifestyle
brand offers an attractive investment opportunity.
Fiscal Q2 Earnings Soar
On November 13, Michael Kors reported fiscal second-quarter
earnings per share of 49 cents, which soared 96% year over year and
topped the Zacks Consensus Estimate at 40 cents.
Total revenue surged 74% from last year to $532.9 million,
surpassing the Zacks Consensus Estimate of $520 million. Sturdy
sales growth in each of the company's business segments and across
all geographies drove the upside.
Sales at the retail segment grew 82% on the back of a 45.1% rise in
comparable store sales and the opening of 66 new stores. Net sales
at the wholesale and licensing segments grew 75% and 13%,
Gross profit was up 80% to $315.9 million, while gross margin
expanded 200 basis points to 59.3%. Operating income totaled $157.9
million, significantly up from $70.0 million in the year-ago
quarter, with operating margin rising 670 basis points to 29.6%.
Michael Kors projects earnings for the fiscal third quarter between
37 cents and 39 cents per share with sales of $525 million to $535
million. Comparable store sales are expected to rise by mid-20%.
For fiscal 2013, the company expects earnings between $1.48 and
$1.50 per share on net sales of about $1.86 billion to $1.96
billion, based on a rise of about 30% in comparable store sales.
The Zacks Consensus Estimate for this fiscal year, ending March
2013, is currently $1.54 per share, or almost 8% better than 90
days ago. Meanwhile, the Zacks Consensus Estimate for next fiscal
year, ending March 2014, has gained 11.5% in that time to $2.03,
which is nearly 32% better than the previous year.
Expensive, Yet Justified, Valuation
Michael Kors currently trades at a forward P/E of 35.3, a
price-to-book (P/B) multiple of 13.5 and has a P/S multiple of 6.5.
All of these figures are at premiums to the peer group averages.
However, given the company's compelling fundamentals, the premium
is justified. Moreover, the company's trailing 12-month return on
equity (ROE) of 45.8%, against 13.5% for the peer group, suggests
that it actively and efficiently reinvests earnings compared to its
Shares of Michael Kors have been rising since late-December 2012
and reached a new 52-week high of $58.62 on November 2, 2012. The
stock is currently trading above its 50- and 200-day moving
averages, which stand at $52.00 and $47.53, respectively. Moreover,
this newly listed stock has consistently outperformed the S&P
500 over the last six months. Volume averages roughly 3,455K daily.
Based in Tsim Sha Tsui, Hong Kong, Michael Kors is a well-known
designer of luxury accessories and ready-to-wear products. The
company sells branded women's apparel and accessories and men's
apparel under the Michael Kors, MICHAEL Michael Kors, and KORS
Michael Kors labels. As of September 29, 2012, the company operated
a total of 349 stores worldwide, comprising 269 company-operated
retail stores and 80 retail stores operated by licensing partners.
The market cap of the company is $10.6 billion. Other stocks in the
textile-apparel sector with a Zacks Rank #1 (Strong Buy) include
Gildan Activewear Inc. (
), Joe's Jeans Inc. (
) and G-III Apparel Group, Ltd. (
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