On Aug 29, 2014, we issued an updated research report on
Michael Kors Holdings Limited
) following the company's first-quarter fiscal 2015 results. In
spite of an earnings beat, management maintains a cautious outlook
Management expects gross and operating margins to decrease 50 and
200 bps, respectively, in the second quarter. The company hinted,
that though the margins are currently very high, over time, it
might face "markdowns" leading to "normalizations," which might run
down the benefits from favorable product mix and overseas
expansion. Although no striking slowdowns will occur, we believe
that the company could suffer from an intense promotional backdrop,
which might prevail on a long-term basis in the retail sector.
Coming to earnings, Michael Kors reported earnings per share of 91
cents per share that came miles ahead of the Zacks Consensus
Estimate of 81 cents, while rising 49.2% year over year. Revenues
of $919.2 million handily surpassed the Zacks Consensus Estimate of
$850 million and grew nearly 43.4% year over year. Consistent
robust performance across all segments and geographies facilitated
Michael Kors is fast emerging as a giant in the luxury retail
space. The company is best known for its handbags and small leather
goods collection, which is rapidly gaining market share in North
America and outpacing its peers. Moreover, the company's collection
of watches is a key contributor to revenues. In order to diversify
its portfolio, the company recently started venturing in other
avenues like jewelry, fragrances and Men's apparel. Management
believes that it will be able to grow the Men's business to a
whopping $1 billion and around 500 stores.
Moreover, to capitalize on opportunities presented by its
ever-increasing popularity, especially in the overseas locations,
Michael Kors is on a store expansion drive across the globe. Going
forward, Michael Kors anticipates opening 45 stores in North
America and expects the count to reach 400 over the long term.
Internationally, the company is eyeing the markets of Europe, Japan
The recovering European market has provided a boost to the company,
as reflected from a 128% rise in sales in the region during the
quarter under review. Fashion-conscious Europe presents
considerable opportunities and hence, management has rightly been
seeking opportunities to open 55 stores in Europe in fiscal 2015
and over the long term, taking the count to an impressive 200.
Currently, Michael Kors has a Zacks Rank #2 (Buy).
Key Picks from the Sector
Other better ranked retail stocks worth consideration include
Hanesbrands Inc. (
), V.F. Corp. (
) and Vince Holding Corp (
). Hanesbrands sports a Zacks Rank #1 (Strong Buy) whereas V.F.
Corp and Vince Holding carry the same rank as Michael Kors.
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