Michael Kors Profits Are In Style

| About: Michael Kors (KORS)

In the wake of high profile stocks including McDonald's (NYSE:MCD) and Priceline (NASDAQ:PCLN) citing European weakness behind timid forecasts, attention remains firmly planted on finding stocks unlikely to be dragged down by overseas exposure.

At the end of May I wrote about Under Armour's (NYSE:UA) limited exposure to Europe. Similarly, Michael Kors (NYSE:KORS) sales in the continent remain small enough to grow without weighing down results in the States.

Kors is growing fast.

In the most recent quarter, Kors reported total sales of $380 million, up 58% from a year ago. Of those sales, only 9.6% came from Europe. The vast majority, some 89%, were generated in North America. Outside of North America and Europe, the company collected another $4 million in revenue, up 545% from the prior year, thanks to its Japanese subsidiary launched in 2010.

The 12 month results are similarly strong. On total revenue of $1.302 billion, up 62%, only 8.3% of sales came from Europe. This brings the company's compounded annual growth to 49% since FY2009. At the same time, the larger base has helped adjusted net operating income climb at a compounded 132%.

Growth last quarter was driven by an 80% jump in retail sales, thanks to both new stores and a 36% increase in same store sales. Wholesale revenue was up a respectable 45% from last year while licensing revenue of $17 million increased 27%.

Overall, the brands profile has benefited from expanded social and online advertising and the success of Project Runway, on which Michael Kors is a judge. In July, the show was the top unscripted series in its time slot among women age 25-54.

The company is designed for growth.

Since year end, the company opened 71 stores through last quarter bringing its total to 237 globally. Eventually the company hopes to have 400 stores in North America alone, with another 100 in Europe and 100 in Japan.

In its wholesale segment, the company is expanding its store-in-store presence at leading retailers including Nordstrom (NYSE:JWN), Macy's (NYSE:M), Saks (NYSE:SKS) and Neiman Marcus. Currently, the company has 550 such shops worldwide, with a goal of eventually reaching 1200.

The company is also well positioned to take advantage of European weakness to expand at cheaper prices. Vacancy rates and rents should remain favorable for ROI growth as the company takes advantage to build up its presence.

Overall, the company's success has helped it grow its cash and equivalents to $106 million exiting last quarter, up from $21 million, despite aggressively expanding.

Investors will get updated on August 14th, when the company reports its FYQ1 earnings. Guidance last quarter called for 35% comp sales growth leading to sales of $360-370 million and EPS of $0.18-$0.20. For the FY13, Kors expected revenue of $1.7-1.8 billion on comp sales of 20%, generating EPS of $1.08-1.12. Given its exposure, growth rate and potential, investors should consider picking up shares on any volatility surrounding its earnings release.

Disclosure: I am long KORS.

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