- Over the last 12 months, Michael Kors is up 41.7% and its competitor Coach is down 42%.
- In addition to the likelihood of continued strength in the U.S. and Europe, Michael Kors plans to increase its global presence in non-established international markets.
- Brashear served for five years as CEO and chairman of Hugo Boss' Americas division.
Comparable store sales growth is integral for luxury retail brands like Michael Kors Holdings (NYSE:KORS) but revenue growth still plays a big role in impacting the stock. Even though new store openings can hide the company's true financial performance a retailer won't open a lot of new stores unless it fully expects them to succeed. With that in mind, consider Michael Kors' top line performance compared to other lifestyle-product companies such as Ralph Lauren (NYSE:RL) and Coach (NYSE:COH) over the past five years.
Michael Kors is a strong performer and although the stock price is a bit volatile, it has shown an upward trend. Over the last twelve months the stock has increased by around 41.7%. Meanwhile fellow handbag maker Coach has not benefited from investor concerns over its competitor's margins. The story of Coach is exactly the opposite and the stock fell nearly 42% over the last twelve months.
Exceptional Results To Attract Investors' Attention
In the fourth quarter of fiscal year 2014, Michael Kors delivered a revenue gain of 53.6% over the prior-year period. Michael Kors successfully generated $917.5 million in revenues, easily beating expectations of $822.7 million. This tremendous growth was the result of impressive performance from all three segments. All of these segments - retail, wholesale, and licensing - delivered significant net sales increases of 49.7%, 55.5% and 79.1%, respectively. Michael Kors will maintain its fast pace growth and the company will surpass one billion dollars in revenues in the current first quarter.
The global same store sales increased at an impressive rate of 26.2%, and diluted earnings per share experienced an improvement of 56% year over year. On a geographical basis, revenues from North America increased 43%, with comparable store sales increasing by 20.6%. This was primarily thanks to strength in accessories and watches in retail and strength in footwear and shop-in-shop locations in department stores in wholesale. In Europe, revenue skyrocketed 125%, with comparable store sales increasing by 62.7%. This was primarily due to increased brand awareness in Europe, which helped to increase demand.
Potential Growth and Expansion
These numbers should be exciting for investors and this level of growth is good enough to ensure healthy returns. In addition to the likelihood of continued strength in the U.S. and Europe, Michael Kors plans to increase its global presence in non-established international markets. Given the success and momentum already seen by Michael Kors in established markets, investors can expect significant growth potential through expansion outside of the domestic market.
Another hint at the likelihood of an impressive future performance is that Michael Kors increased its full-price retail store count and outlet store count by 38.8% and 22.3%, respectively, for fiscal-year 2015. An increase in store count alone doesn't promise strong future performance but such significant store count increases show that the company is highly confident in its future prospects.
In addition to consistently delivering strong domestic results, the company is now looking to increase its international exposure. Michael Kors has well positioned itself to benefit from the fall of Coach. Coach, once a high-flying company, has seen same store sales tumble in the past four quarters and as a result plans to close around 20% of its full-priced stores in the current year. The big reason of this fall is that Michael Kors continues to take its market share. Michael Kors has a solid plan to continue to boost its earnings stream by expansion in the domestic as well as international markets. The company has set a goal to increase its store count to 400 in North America, up from 288 at the end of the fourth quarter.
Michael Kors is making progress in its men's business and to strengthen it the management recently appointed Mark Brashear as president of the division. Brashear served for five years as CEO and chairman of Hugo Boss's Americas division. Hopefully, Brashear will effectively utilize his experience to bring success to the men's business. To push into the men's business, Michael Kors is set to launch a new men's fragrance, introduce a new collection of men's watches and open its flagship store featuring full men's offerings. With this strategy, Michael Kors is targeting its men's division to be a $1 billion business. This is a lofty aspiration considering it expects total revenue this fiscal year to be between $4.0 billion and $4.1 billion. By comparison, Coach is currently targeting its fiscal 2014 men's sales to be $700 million.
Michael Kors is currently trading at 27.66 times earnings making it moderately more expensive than Ralph Lauren, which is currently trading at 18.90 times earnings and Coach, which is currently trading at 10.44 times earnings. Despite its higher P/E multiple, it looks like paying a premium for Michael Kors would be more than justifiable when looking at the growth potential and stock price movement. However, if you're a dividend investor then you might prefer Ralph Lauren or Coach, with current yields of 1.13% and 3.94%, respectively. Michael Kors doesn't pay a dividend, which makes sense given its substantial growth potential.
The management's compelling initiatives such as the rapid expansion of its retail network, efforts to increase revenues from the high-margin accessories segment as well as the increasing popularity of the Michael Kors brand makes investors believe that the stock offers upside. Therefore I recommend buying the stock.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by a Gemstone Equity Research research analyst. Gemstone Equity Research is not receiving compensation for it (other than from Seeking Alpha). Gemstone Equity Research has no business relationship with any company whose stock is mentioned in this article.