Michael Kors: Don't Get In Now (Part II)

| About: Michael Kors (KORS)

As my latest article about Michael Kors (NYSE:KORS) - in which I made clear that now is not the time to get in - was a bit short, I fear that many people have misinterpreted what I wanted to say. For today's article I've decided to dig deeper, to find out whether or not my analysis about KORS was indeed published too soon or incorrect as some people mentioned in the comment section.

During this article I will be focusing on KORS' quarterly figures to figure out whether or not the company is already slowing down. Most people will already know how to read the tables I'm about to present to you, but let me give you a quick example anyway.

When a table for instances says: Q3 2012: 68% it simply means that the company reported 68% more revenue in Q3 of fiscal 2012 than in Q3 of fiscal 2011. Got it? If not, ask a friend for help.

Moving on....

KORS' figures

Quarter over quarter revenue growth

While you are taking a good look at the following table I want you to notice how KORS' revenue growth seems to be showing a slow down since its first two quarters of fiscal 2014. The company reported 54.5% vs. 71% and 38.9% vs.74% revenue growth, respectively.

Quarter over quarter same store sales growth

Next, as total revenue growth might be a bit conceiving as it also calculates the revenue of new-opened stores, I believe it is even more important to take good look if KORS' already existing stores are still growing their revenue.

Please notice that the first two quarters of fiscal 2014 are clearly showing declining growth figures compared to fiscal 2013. Growth in comparable store sales almost halved from 45.1% in Q2 2013 to "only" 22.9% in Q2 2014..

Quarter over quarter EPS growth

While you are taking a look at this table, I also want you to take another look at KORS' revenue growth table. This way, you'll notice that KORS' earnings growth continues to be larger than its revenue growth (which indicates that people are willing to pay a high price for its goods). However, its earnings growth is becoming more and more equal to its revenue growth, indicating that KORS might have reached a ceiling when it comes to its margins. In its latest quarter, KORS reported a 38.9% revenue growth and a 44.9% EPS growth. As a comparison: in Q2 of fiscal 2013, the company was able to report 74% revenue growth and a gain of 162% in its EPS.

Comparison in valuation of respected peers

To end my comparisons I've made a table to compare KORS with Coach (NYSE:COH) and Ralph Lauren (NYSE:RL). Both of these companies are building or are having a lifestyle brand, just like KORS.

While taking a look at this interesting table, I hope the reader notices that KORS is having the highest market capitalization and the highest forward P/E ratio of the three while reporting the least amount of sales, reporting the least amount of income and having no dividend yield. In fact, Coach is having a higher net profit margin, almost 2 times KORS' sales and a nice dividend yield while having a lower market cap.

KORS is currently priced as a company that is reporting more than $5 billion in sales while only reporting $2.62 billion. KORS still has to grow $2.4 billion in revenue before its current valuation makes sense, to achieve this, the company has to grow revenue by 25% for another 3 consecutive years WITHOUT touching its profit margins. If this scenario takes place, then KORS valuation seems justified, if not, it is -without a doubt- extremely overpriced.


While KORS is still booming as many of our wives, girlfriends, daughters and other relatives are probably owning or buying KORS merchandise, the figures don't lie and show me that KORS is already showing a "serious" decline in growth.

While I believe that KORS is an outstanding business that could certainly grow some more in the future, especially when it starts expanding to Europe or Asia, I fear that these prospects are already taken into account by its $16 billion valuation. Its current share price seems to be just right. In my opinion, there is nothing more to add or to subtract.

Unfortunately the stock market is irrational and will probably pump it up some more before making a correction (again, toward its justified $16 billion valuation). Isn't it weird that Mister Market is only looking at KORS (SHORT-TERM) terrific prospects, but doesn't look at KORS' medium to long-term challenges?

I don't see why anyone would want to buy KORS now if he wants to continue sleep well at night. Getting in now seems completely pointless as the company is not worth a $16 billion valuation at the current moment but probably will be in the future. You're already anticipating terrific results, and I believe that is never (especially in fashion) a safe bet to make. If KORS' results are not as terrific as expected, investors will regret their investment decision.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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