Michael Kors Holdings Has Major Growth Potential In Next 1-3 Years

Mar.28.12 | About: Michael Kors (KORS)

Michael Kors Holdings (NYSE:KORS) is a growing global luxury lifestyle brand lead by award-winning designer Michael Kors. Since launching his namesake brand 30 years ago, Michael Kors is setting himself up to be the new Ralph Lauren (NYSE:RL), creating timeless American luxury sportswear. Right now, Kors is synonymous with luxury accessories and handbags which are highly sought after.

Snatching Up Market Share

KORS is poised to take market share from luxury brands like Coach (NYSE:COH). The accessories category is ripe for competition. In 2011, Americans spent $8.5 billion on bags, according to Accessories magazine, an industry bible. Since the company went public three months ago, its ambitions have become clear. Dominate. The company aims to more than double its North American stores to 400, and more than quadruple its department store boutiques to number 1,000-plus. Michael Kors will operate in malls and street locations, yes, like Coach, and sell accessory-heavy collections with a focus on "accessible" luxury.


This aggressive growth strategy could pay off. The company has posted growth in sales at stores open at least a year (a key measure of a retailer's success) in every quarter of the past five fiscal years. Same-store sales for the 11 weeks ended March 17th rose 36% from a year earlier, the company said last Monday.

Until the company went public in December, few knew how well it was performing. Turns out revenue soared 68% in its fiscal third quarter ended December 31, while Coach, operating off a much bigger and older store base, saw a 15% expansion in the same three months.

Solid Management

Kors is led by Chief Executive Officer John Idol, who previously ran Donna Karan International Inc. and worked at Ralph Lauren. Shareholders Laurence Stroll and Silas Chou, who head the private-equity firm Sportswear Holdings and helped develop the Tommy Hilfiger brand, sit on the board.

KORS Analysis

In Tweaker, we set our growth rates at a range of 45.4-56.7, giving an average growth rate of 52.7% in the next 1-3 years. We also gave a profit margin of 10-12%. With these ranges, Tweaker has KORS in fairly valued range of $25 - $60, needing more growth or profit to justify a higher valuation.

KORS could be one to watch in the next few years. This skyrocket seemingly came out of nowhere and this could be just the beginning for this luxury brand.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.