High-end retailer Michael Kors (KORS) reported a strong fourth quarter Tuesday. For the quarter, earnings per share more than doubled compared to a year ago, to $0.22 (consensus was at $0.16). Revenue grew 58.3% to $380 million. Same-store sales advanced 36.1%, driving total retail sales growth of 80%-plus. Michael Kors also improved gross margins 570 basis points to 63.4%, exceeding levels achieved by Lululemon (LULU) but still trailing competitor Coach (COH), which has gross margins of 72.6%.
Michael Kors' ability to sell products to a supposedly "constrained" consumer underscores our thesis that the American consumer is not dead and retail consumption is moving toward affordable luxury and high-end goods. North American same-store sales growth at Michael Kors of 37.2% supports this thesis. $100 sunglasses, $225 watches and $150 bikinis are resonating with consumers better than products one could get at Kohl's (KSS) for significantly less. We feel shoppers will continue to sacrifice quantity for perceived quality and popularity.
Though the firm doesn't quite serve the same clientele as Saks (SKS) or Louis Vuitton, it is proving to be an aspirational brand with potential to be on par with Coach, in our view. With this report, the company has shown that it is also fairly insulated from European macroeconomic headlines. Quarterly revenue in Europe grew 122.6% on same-store sales growth of 13.6%. Management stated that the firm expects "only" 20% same-store sales growth in Europe and that it is on pace to open 10-15 new stores annually-impressive for a challenged region.
In addition to posting a strong fourth quarter, guidance for fiscal year 2013 was optimistic. The firm guided to revenues of $1.7-$1.8 billion (a 45% year-over-year increase), earnings per share of $1.08-$1.12 (a 38% year-over-year increase) and company-wide same-store sales growth of 20%. We'll be looking to add Michael Kors to our coverage universe, but at this point we're cautious on the firm as it trades for nearly 40 times consensus earnings for next year.