Shares of Michael Kors (KORS) rallied more than 16% in Tuesday's trading session. The luxury brand reported strong first quarter results for its fiscal year of 2013, before the market open. Shares have risen almost 150% after going public in December of 2011.
First Quarter Results
Michael Kors reported first quarter revenues of $414.9 million, up 71% compared to last year. Growth was driven by a 76% increase in retail sales to $215.0 million. Comparable sales growth increased by 37.3%. The remainder of the growth was driven by 76 new store openings, bringing the total to 253 stores. Wholesale revenues rose 66% to $182.4 million, while licensing revenues rose 61% to $17.5 million.
Gross profits rose 83% to $251.0 million, as gross margins expanded by 420 basis points to 60.5%. Operating income rose 149% to $111.9 million. Net income rose from $24.1 million to $68.6 million, or $0.34 per diluted share. The company previously guided that it would earn $0.18-$0.20 per share, on revenues of $360-$370 million.
Chairman and CEO John Idol commented on the results, "We are pleased with the strong start to our fiscal year with a 71% increase in total revenue and 185% growth in net income. Our results demonstrate the strong momentum of the Michael Kors brand and the continued execution of our key growth strategies. Michael Kors' luxury fashion designs are resonating globally with out customers."
Michael Kors remains heavily focused on North America. North American sales came in at $377.1 million, up 67% compared to last year. Comparable sales in the region grew 38.4% as a result of continued strength in the retail and wholesale business.
European sales rose by 110% to $33.4 million, despite the recent dollar strength. Same stores sales in the continent came in at 24.2%. Revenues in other parts of the world came in at $4.3 million.
For the second quarter of 2013, Michael Kors expects revenues to come in between $490-$500 million. The company assumes comparable store sales to increase by roughly 30%. Diluted earnings per share are expected at $0.33-$0.35. On average, analysts expected the company to guide for second quarter earnings of $0.28 per share.
For the full year of 2013, the company expects total revenues of $1.8-$1.9 billion. This assumes comparable store sales in the mid- to high twenty percent range. Diluted earnings per share are expected at $1.32-$1.34 per share. Previously, the company guided for annual earnings of $1.08-$1.12 per share, on revenues of $1.7-$1.8 billion.
Michael Kors ended its first quarter with $162 million in cash and equivalents. The company operates without any significant debt, except a revolving line of credit of $28 million.
The market currently values Michael Kors at $9.5 billion. Based on the company's full year 2013 outlook, this values the firm at 5.1 times estimated annual revenues. Investors value the firm at 37 times estimated annual earnings. This valuation compares to a revenue multiple of 1.9 times for Ralph Lauren (RL), which trades at 19 times annual earnings.
Currently, Michael Kors does not pay a dividend.
Year to date, shares of Michael Kors have returned over 80%. Shares peaked at $50 in March of this year, amidst optimism about the general economy. Shares slid towards $37 in June of this year, as investors fear the impact of a consumer slowdown on the prospects of luxury brands. Shares recovered in recent weeks as equity markets recovered, and Tuesday's results propelled shares to new all time highs.
Michael Kors reported a set of blow-out results on Tuesday. Strong store openings, and very strong comparable store sales, continue to drive shareholder value. The decades old luxury brand has seen a strong recovery of its brand value, and appeal with high end customers. Still heavily focused on North America, the brand has still plenty of growth potential in Europe and Asia.
Despite the strong operational performance and vast growth opportunities, I remain on the sidelines. The recent run-up in the share price and continued macro-economic risks, make the risk-reward not appealing to me. With returns of 150% compared to the public offer price, the stock has seen most of its appreciation already.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.