Michael Kors Holdings Ltd. (KORS) opened up 25% Thursday morning, after pricing its upsized 47.2 million share IPO at $20.00, above the indicated range of $17.00-19.00. Based on the $20.00 pricing, the company will have a market capitalization of approximately $3.82 billion. Morgan Stanley, J.P. Morgan and Goldman Sachs are leading the offering.
Michael Kors Holdings is a rapidly growing global luxury lifestyle brand. The company’s namesake, designer Michael Kors, established the brand in 1981, at the age of 22, and is arguably described as one of the 3 most iconic American Designers (along with Ralph Lauren and Marc Jacobs). The company operates under 2 brands: the Collection brand was introduced in 1981 and is the luxury brand sold in high-end retailers such as Neiman Marcus and Saks. Then there is an accessible luxury segment, Michael (Michael Kors), introduced in 2004 and positioned for the younger demographic, with sales through retailers such as Macy’s and Nordstrom.
The company’s sales are divided about equal between wholesale and retail. It currently has approximately 221 retail stores worldwide, up from 166 at the end of FY 2011 (FY ends March). The company believes it can grow retail stores to approximately 600 worldwide (400 in North America, 100 in Europe, and 100 in Japan). Wholesale customers' total North American doors equal 1,801, with 549 International wholesale doors (as of October 2011). Accessories and related merchandise make up 62% of the company’s business. The company also has licensing deals for watches, eyewear, and fragrances with Fossil, Marchon, and Estee Lauder, respectively.
KORS plays in the global luxury apparel and accessory market which is expected to grow at approximately a 7% CAGR from $230B in 2010 to $299B-$306B in 2014. KORS is growing on a number of fronts. Retail stores have grown from 74 in FY 2009 to 221 as of Nov 2011. Global comp store sales growth was 6% in FY 2009, 19% in FY 2010, 48% in FY 2011, and 42% for 6mo 2011. The number of wholesale doors has increased from 1313 in FY 2009 to 2350 as of Oct. 2011.
The company has also achieved strong revenue growth, with a CAGR of 42% from FY 2009 to FY2011, from $397 million to $803 million. For the 6 months ended October 2011, revenue is up 61% year over year to $549 million, operating profit was up 111% to $104 million and net income was up 137% to $64M. The company has also had positive comp store sales growth for every quarter over the last 5 years, and comp store sales are up 42% for the 6 months ended October 2011.
Retail related U.S. IPOs have been a bright spot in the IPO market over the last year and a half, with names like Vera Bradley (VRA), Francescas (FRAN), and Teavana (TEA) all up over 50% on their first day of trading. Coupled with a rebound in the luxury goods market in the last two years following the downturn, the demand for KORS has been very strong, with the offering oversubscribed since last week. All of this adds up to the prospect of making those lucky enough to get into the IPO at deal price, as well as the namesake Michael Kors (who will make over $11M through the sale of shares) very happy campers on Thursday.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KORS within the next 72 hours.