Michael Kors Is Found Eating Coach's Lunch

Feb. 4.14 | About: Michael Kors (KORS)

Michael Kors (KORS) is a luxury brand that, focused on North America, produces handbags, jewelry, watches, and general apparel. They design primarily for women, but also produce some menswear.

It was just yesterday that I dropped my thesis on going long Michael Kors, and why I was bullish heading into this morning's earnings.

With a considerable amount of room for growth worldwide, I'll be buying into any weakness into - and after - earnings on expectations of Kors being a mid-to-long-term winner (1 year to 3 years) in the retail sector. It is the only stock I own in the area of retail, so it represents the entire sector in my portfolio.

I'm bullish into Kors earnings this week and for the long-term.

The giant question was going to be if Kors was going to continue to eat Coach's lunch the way that it had been in previous quarters. Kors, since IPO, has beat on every single earnings announcement thus far.

In the midst of yesterday's shaky market, the stock suffered about 3.5% as jittery investors sought exodus from the market as a whole. I added to a couple of my other long positions on the dip - what I should have done was added to my Kors position.

But, alas, it was still a fine morning for myself and other Kors investors as the retailer posted a complete and utter annihilation of all analyst expectations and higher guidance. Nothing short of a complete grand slam/touchdown/hole-in-one/(insert sports analogy that middle aged men understand here) in the midst of a sector that has been watching comparable names pull back aggressively during the same time period.

MarketWatch reported:

Michael Kors Holdings Ltd. said its fiscal third-quarter profit soared 77% as the retailer benefited from a strong holiday shopping season, and revenue crushed market expectations.

Michael Kors KORS +20.06% once again raised its outlook for the year. It expects per-share earnings of $3.07 to $3.09 on revenue of $3.18 billion to $3.19 billion. The company had previously raised its guidance in November, expecting per-share earnings of $2.77 to $2.81 on revenue of $2.9 billion to $3 billion.

For the current quarter, the handbag maker and retailer expects per-share earnings of 63 cents to 65 cents on revenue of $790 million to $800 million. Analysts polled by Thomson Reuters had been calling for earnings of 65 cents and $790 million in revenue. Michael Kors is also assuming a same-store sales increase of 15% to 20%.

For the quarter ended Dec. 28, Michael Kors reported earnings of $229.6 million, or $1.11 a share, up from $130 million, or 64 cents a share, in the prior year. Revenue rose 59% to $1.01 billion. The company had forecast per-share earnings of 83 cents to 85 cents on revenue of $845 million to $855 million.

While everyone else blamed weather for their lack of results, Kors found no need to make such excuses, as they were able to post significant gains without effecting margins.

Same store sales were up 28% during a time where most retail failed to post positive numbers, citing lower mall traffic and weather issues.

Seeking Alpha reported some of the details this morning, as well:

  • Michael Kors blew past revenue estimates without sacrificing margins inFQ3. Gross profit as a percentage of total revenue was up 100 bps to 61.2% during the period.
  • Weather and macroeconomic factors took a backseat to a brand that is on fire with consumers during the period.
  • Expenses and inventory rose slower than sales in FQ3 for the retailer.
  • Guidance for FQ4 is for revenue of $790M-$800M on the company's view that comparable store sales will increase by 15%-20%.

Kors started the morning up 19.9% to $91.95.

As I stated in my original article on Kors yesterday, I continue to remain long on this company for the next 1-3 years. I think the company's room to grow in Europe could easily see the brand continue to scream as its been doing, before issues with brand saturation begin to finally take place.

We are a few years from that, but when we get there, KORS will be subject to the same type of macro market trends that Coach has. For now, Kors just took a big bite out of Coach's bologna and cheese that it brought for lunch.

I remain bullish and long on Kors. Best of luck to all investors.

Disclosure: I am long KORS. 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.