After recovering from bankruptcy in 1990, Michael Kors, the
founder of the eponymous brand
Michael Kors Holdings
), has grown the company into nearly a $13 billion empire. By
aligning the brand with a jet-set lifestyle that is more
"aspirational" than its accessible luxury peers, KORS has
established a fashion-forward reputation that resonates deeply with
Michael Kors' astounding growth over the past few years poses a
potential threat to the market share of
), the current dominant player in the US with 28% of the US handbag
market. While KORS holds only a third of Coach's market share, KORS
has cornered a lucrative position by providing more fashionable
product offerings at similar price points. While other rival brands
like Kate Spade and Tory Burch are also growing quickly, Michael
Kors appears to be the most serious challenger to Coach's reign.
KORS has also taken a page out of the playbook of iconic luxury
(EPA:RMS) and Chanel by anchoring its product line with specific
handbag and accessory pieces - HermÃ¨s has the Birkin, KORS has the
Hamilton bag and its line of chronograph watches. This has helped
to further the perceived prestige of Michael Kors products by
preserving brand loyalty and strengthening brand recognition.
Recently, the high-end retailer reported sturdy fiscal Q4 2013
earnings that blew past expectations as sales of handbags and
flashy watches surged. Key highlights from the earnings report are
- Q4 EPS of $0.50 surpassed analyst estimates by $0.11.
- Q4 revenue grew a staggering 57.1% to $597.2 million, beating
estimates by $51.1 million.
- Since Q4 2012, retail sales increased by 59%, driven by a 37%
increase in total same-store sales and new store openings.
- Gross profits grew 2% as a percentage of revenue, reflecting
stringent control of product margins.
Much of the company's growth can be attributed to expanding
market penetration both domestically and abroad, a well-diversified
and appealing product line, and mounting brand recognition
worldwide. Favorable economic conditions will further amplify
KORS's trend of stunning earnings growth in the upcoming quarters.
With US consumer confidence recently hitting six-year highs,
consumers are loosening their purse strings and are likely to
indulge in accessible luxuries from retailers like Michael Kors.
Positive employment data is another bullish sign for the consumer
retail market that bodes well for the company.
Market IQ pro metrics give KORS a neutral rating. Market IQ
characterizes KORS as high quality but low value stock (see below).
Click to enlarge
The above Quality - Value chart consists of the following
comparable companies: Michael Kors,
Fifth and Pacific Companies, Inc.
Ralph Lauren Corporation
The company's qualitative strengths can be seen in multiple areas
such as EPS growth, Return on Equity (ROE), and financial
- Strong sales in conjunction with improving margins have
translated into an annual EPS growth rate of 26.1%, which greatly
surpasses the peer average growth rate of 15.7%.
- ROE increased to 32.1% in fiscal Q4 2013 vs. in fiscal Q4
2012. Additionally, KORS offers a higher ROE relative to the peer
average of 12%.
- KORS maintains an adequate Interest coverage ratio of 22,
which demonstrates the firm's ability to maintain its short-term
Based on Market IQ's Valuation metrics, KORS is trading at a high
premium. Since its IPO in 2011, the price of KORS has skyrocketed
nearly 260%, significantly outperforming its peers and the
S&P 500 Index
(INDEXSP:.INX). The stock's sharp appreciation has driven it to a
valuation level, which is now expensive relative to its peers (see
Despite the high valuation, KORS's impressive trend of growth and
its valuable brand equity serve to justify the premium investors
are placing on the stock. With stellar growth prospects and sound
financials, the vast majority of analysts have been very bullish on
KORS - EPS estimates for fiscal 2014 have increased from $2.34 per
share 90 days ago to a current estimate of $2.57 per share.
For the upcoming fiscal year, KORS has set revenue projections of
$2.65 billion, with EPS estimates between $2.43 to $2.47. The
expectations on Wall Street are slightly rosier, however, with
estimates of $2.82 billion and EPS of $2.45. It should be noted
that despite giving modest projections, KORS has consistently
surpassed analysts' EPS by an average of 44% for the past four
quarters. Based on this trend, it may be reasonable to expect
further upwards revision in revenue and EPS in the near future.
Going forward, management foresees opportunities for expansion
within domestic and international markets.
Within the domestic market, the company is planning on expanding
its retail store count from 231 locations to 50 new stores by end
of 2013. Additionally, KORS is focused on driving incremental
revenue from wholesale segment by converting department store doors
to shop-in-shops. An in-store conversion produces three times the
sales volume of an unconverted door. The company sees an
opportunity to operate through shop-in-shops within 1000 doors
domestically, with plans to convert over 100 per year.
On the international front, opening 40 new boutiques in Europe and
approximately 200 stores in the Far East focus the firm on
exploring avenues of growth within the European market and the Far
Management is confident in its ability to continue attracting
consumers with its chic assortment of products and a differentiated
positioning within the luxury retail market. With aggressive
domestic and international expansion plans, management's optimism
is another symbol heralding a bright future ahead of KORS.
This article was written by Erika Chau and Adil Yousuf and
originally appeared on
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