Michael Kors - Like Its Accessories, Shares Keep On Shining

| About: Michael Kors (KORS)

Shares of Michael Kors (KORS) rose 0.8% in Tuesday's trading session, after opening with gains of almost 5%. The designer, marketer and distributor of the revived Michael Kors luxury brand, reported its second quarter results for its fiscal 2013.

Second Quarter Results

Michael Kors reported second quarter revenues of $532.9 million, up 74% on the year before. Revenues exceeded analysts consensus of $524 million.

Retail sales rose 82% to $242.3 million, driven by a 45.1% increase in comparable sales. The company furthermore opened 66 stores since the second quarter last year. Wholesale sales rose 75% to $270.8 million, while licensing revenues were up 13% to $19.9 million.

Income from continuing operations came in at $157.9 million, for an operating margin of 29.6%. Operating margins were up 670 basis points compared to the second quarter last year. Net income rose 141% to $97.8 million, or $0.49 per diluted share. Net earnings comfortably beat analysts consensus of $0.39 per share.

The company operated 269 retail stores at the end of the quarter. The company's products are for sale in another 80 additional retail stores operated through licensing partners.

CEO and Chairman John D. Idol commented on the results, "We are pleased to have delivered record results in the second quarter. Our performance is a reflection of Michael Kors' brand strength, innovative fashion design and the successful execution of our growth strategies. We are excited to see the growing global recognition and appeal for the Michael Kors luxury brand."

Geographic Distribution

North America remains by far the most important geographic area for Michael Kors, generating over 88% of firmwide revenues. Revenues in North America rose 71.6% to $471.4 million. The European division increased its revenues by 97.3% to $56.7 million, and Kors remains very optimistic about the business. Revenues in the Asian region rose 129.0% to a mere $4.9 million.


For the third quarter of its fiscal 2013, Michael Kors expects revenues to come in between $525 and $535 million. The guidance assumes that comparable store sales are expected to come in the mid-twenties. Diluted earnings per share are expected to come in between $0.37 and $0.39 per share. The guidance implies that quarterly revenues are expected to fall on a sequential basis.

Full year revenues are expected to come in between $1.86 and $1.96 billion, implying that full year revenues are expected to rise 47% on the year. Analysts expected Michael Kors to guide for annual revenues of $1.97 billion. Diluted earnings per share are expected to come in between $1.48 and $1.50 for its fiscal 2013, compared to analysts forecasts of $1.46 per share.


Michael Kors ended its third quarter with $312.2 million in cash and equivalents. The company operates with a revolving credit line of $11.6 million, for a comfortable net cash position of approximately $300 million.

The market currently values Michael Kors at $9.9 billion, which implies a valuation of operating assets of $9.6 billion. This values the firm at 5.0 times its fiscal 2013s annual expected revenues. The company is valued at 33-34 times annual earnings.

Michael Kors currently does not pay a dividend.

Investment Thesis

Year to date, shares of Michael Kors have risen an incredible 87%. Shares have more than doubled since the company went public in December of 2011. The incredible high same store sales growth, and the aggressive pace of store openings drove revenues and earnings growth.

The brand, which has been around for a long time, aggressively expanded its operations in recent years. Revenues rose from a mere $377 million in 2009, to an estimated $1.91 billion for its fiscal 2013. The company increased annual earnings from $13 million, to an estimated $290 million for its fiscal 2013.

The licensing deal of Michael Kors, which sells its products in luxury department stores, increases its global brand appeal. The wholesale strategy is in that sense complementary to the company's own branded stores. Michael Kors furthermore remains optimistic about the prospects in Europe, despite the economic conditions. Next year, the company anticipates to be the most accessible handbag luxury brand in the continent.

Investors were performing a balancing act in Tuesday's trading session. Second quarter earnings comfortably beat estimates, while the full year revenue outlook was a little soft. Despite the fact that shares have more than doubled since going public, the brand has "grown" into its premium valuation. Valuation levels are reasonably high on earnings and revenue metrics, but they are sustainable if the company maintains on its current path to expand its business.

I do not consider shares as a convincing buy or short, therefore I remain on the sidelines.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.