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Michael Kors (NYSE:KORS) and Nordstrom (NYSE:JWN) are two luxury retailers that are buys based on their recent sales performance. Their strong sales come at a time when shares of luxury brands like Burberry (OTCPK:BBRYF) dropped 21% due to fears of weak demand for luxury goods. China, which is a key market for luxury brands, showed slow economic growth, and Europe suffered due to economic worries. In our last article, we had discussed why we gave Tiffany (NYSE:TIF) and Coach (NYSE:COH) a hold rating, whereas a buy rating for Ralph Lauren (NYSE:RL). Since then, BBRYF has reported better than expected sales, however, less than last year's sales. This helped boost the stocks of TIF and Coach by about 2%.

Michael Kors :

KORS, a retailer, wholesaler and licensor of apparel and accessories, has consistently outperformed the S&P 500 index. In its Q1 FY2013 results, the company had posted a revenue increase of 71%, comparable-store sales gain of 37.3% and diluted EPS increase of 162%. Revenue and EPS were above analyst expectations due to all segments performing well. 66% growth in the wholesale segment was due to the success of shops within departmental stores like Saks (NYSE:SKS) and Nordstrom . Even European same-store sales were up 24.2%.

In its Q1 earnings release, the company had guided revenue of $490-$500 million, comparable-store sales of 30%, and diluted EPS of $0.33-$0.35 for Q2 FY2013. Last month, the company upped its guidance to $0.38-$0.4/share with revenue of $510-$520 million. The EPS guidance has been increased as well to $0.38-$0.4. This is due to the quarter to date performance in September (45.1% comparable store sales). For the full fiscal year 2013, the company now expects $1.39-$1.41/share on the back of $1.85-$1.95 billion. Analysts are expecting $1.44/share for FY2013.

The company is giving a hard time to its "affordable luxury" peer, Coach. Coach drives the majority of its revenue from sales of handbags like KORS. COH's stock has gone down around 30% (since April) due to weak consumer spending, competition from KORS and stopping coupons at outlet stores.

Since its initial public offering at the end of last year, the stock price has more than doubled (i.e. 120%). The company recently announced the pricing of its secondary public offering of 23 million ordinary shares at $53/share. Though the phenomenal sales and earnings growth are not sustainable indefinitely, KORS has a lot of margin to expand internationally as 90% of sales currently come from North America. The company has a forward P/E multiple of 28x and a PEG ratio of 1.27. This compares with a forward P/E multiple for Ralph Lauren of 17x and a PEG ratio of 1.49. Coach trades at a forward P/E of 12x and a PEG of 0.98. The mean target price for KORS is $63. Citigroup recently started coverage of KORS with a buy rating and a $65 target price, only to raise it to $68. The table below gives valuations of KORS at a forward P/E of 28x.

*2015 EPS calculated by applying growth rate of 28% to 2014 consensus estimate for EPS.

Nordstrom :

Nordstrom , an upscale retailer of apparel, shoes and accessories, had beaten analyst estimates for EPS by 1.4% in Q22012. In August, it raised its full-year guidance to $3.4-3.5/share. Analysts are currently expecting $3.48/share.

Same-store sales are a key measure of a retailer's prospects. Among departmental stores, Nordstrom posted September same-store sales of 4.4%, which were more than peers like Kohl (NYSE:KSS) and Macy (NYSE:M). KSS experienced a decline of 2.7%, while M showed a gain of 2.5%. Nordstrom Rack stores (off price) performed better than full-line stores with comps of 6.9% vs. 4% for full line, as can be expected in the prevalent economic conditions. Rack stores offer products at a discount of 50%-60% from the original price at Nordstrom. The company is planning to open more Rack stores (15 in fiscal 2012 and 24 in fiscal 2013) in addition to opening stores in Canada in 2014. By 2016 the rack stores are expected to be 230 in number from the current 110. Year to date (till Sep, 29) sales are up 11.4%.

The company has a dividend yield of 2%, free cash flow yield (trailing twelve months) of 3.1% and payout ratio of 31%. $696 million remain under its share repurchase authorization, which is 6% of the current market cap.

When KORS raised its guidance, it drove JWN shares up by 0.4% as well. RBC capital have an outperform rating for the stock ($61 price target) like analysts from William Blair ($62 price target). Analysts have a consensus price target of $60.

The valuations for JWN below are based on its average last five-year P/E multiple of 15x and a forward P/E of 14x. SKS is trading at an 18x forward P/E, M at 10x and KSS at 10x. The 52-week high value is $58, and we expect the company's stock to set at all-time highs.

*2015 EPS calculated by applying growth rate of 12% to 2014 consensus estimate for EPS.

Source: 2 Luxury Retail Stocks To Buy Now