For many fashion brands, it's hard enough establishing success
in one distribution channel, be it retail, wholesale or
Michael Kors Holdings (
) is out to prove it can find success in all three at the same
Michael Kors is a global accessories, footwear and apparel
company. Most of its business, about 75%, comes from accessories
such as handbags, small leather goods, eyewear, jewelry, watches
At the close of its fiscal first quarter, which ended in June,
the company operated 253 of its own retail stores and licensed
another 68 stores to partners. It also operates wholesale and
All of these channels have produced robust growth in recent
quarters, no mean feat, analysts say, considering the volatile
nature of the fashion industry as well as the sluggish
"Among a specialty retail landscape that is desperate for
growth, Michael Kors represents a highly compelling longer-term
footage growth story," JPMorgan analyst Brian Tunick said in a
report earlier this month. "The company is in the enviable
position of being able to drive growth across all of its
distribution channels and geographic regions for the foreseeable
Kors operates in the luxury end of the fashion and retail
sector, along with companies such asCoach (
),Ralph Lauren (
) and Donna Karan International.
Its founder, Michael Kors, has built a reputation for
fashion-forward designs, though he's probably best known to most
folks as a judge on the "Project Runway" television series.
The company's products feature "innovative designs, materials
and craftsmanship with a jet-set aesthetic that aims to combine
stylish elegance and a sporty attitude," said Citigroup analyst
Fashionistas aren't the only ones who've taken a liking to
Michael Kors Holdings. It also has earned high marks from Wall
Financially, Michael Kors has consistently topped analyst
expectations since going public last December.
During its first three quarters as a publicly traded company,
Michael Kors has grown earnings at least 87% and sales at least
Chen reckons Michael Kors can grow its annual sales in Europe
to $550 million, up from $109 million in fiscal 2012. The company
also targets bigger sales in Japan.
"Michael Kors has accelerating awareness in targeted
international markets," Chen noted. "(The company) has a long
growth runway given its low saturation."
He projects 25% annual growth in the number of Michael Kors
stores over the next few years, with a potential for 600
Meanwhile, the company's long-term wholesale revenue growth
should exceed 20% a year based on new or enlarged shop-in-shops
in the U.S. and Europe. "Shop-in-shop" refers to areas within
department stores that are devoted to Michael Kors products.
Business has been so brisk at Michael Kors that the company
recently raised its guidance for its fiscal second quarter, which
ended in September.
Management now expects earnings in the range of 38 cents to 40
cents a share vs. earlier guidance of 33 cents to 35 cents. It
expects sales of $510 million to $520 million, up from previous
guidance of $490 million to $500 million. The company raised its
retail same-store sales growth to 45% vs. prior guidance for a
It is due to report Q2 earnings on Nov. 13.
"Following its updated outlook, Michael Kors has now posted 26
straight quarters of positive comps and 10 straight quarters of
35%-plus comps, some of the most robust and consistent comp gains
in the space," Tunick noted.
The company logged fiscal first-quarter earnings of 34 cents a
share, up from 13 cents the prior year and 14 cents above Wall
Street views. Revenue gained 17% to $414.9 million, well above
estimates for $368.3 million.
Retail sales during the quarter climbed 76% to $215 million.
Same-store sales increased 37%.
Wholesale revenue rose 66% to $182.4 million. Licensing
revenue gained 61% to $17.5 million, driven by strong demand for
Kors' growth strategy includes targeting a younger, affluent
demographic that is often overlooked by luxury brands.
JPMorgan's Tunick points out that the company's current target
customer is 25 to 54 years old, with annual income above $50,000
"The growth going forward is targeting the more aspirational
luxury customer," Tunick noted. "Brand awareness is trending
younger; the 18- to 24-year-old demographic is now the highest
awareness group. This positions them well for future growth."