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Is Micheal Kors Holdings A Buy?

July 17, 2014 | About:
sandyinvestment

sandyinvestment

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Michael Kors Holdings (KORS) , the worldwide extravagance lifestyle brand, has been on a tear since its IPO in December 2011. Kors' shares have picked up more than 300% since the IPO, however it would seem that the organization hasn't used up steam yet.

Despite rivalry from more established peers such as Coach (COH) and Louis Vuitton Moet Hennessy (LVMUY) , Kors still continues to develop at a neck-breaking pace as its late quarterly results suggest.

Impressive development continues

In the second from last quarter, Kors' revenue rose 59% to pretty nearly $1 billion, easily surpassing the $859.9 million analyst estimate. Sales were determined by a 27.5% bounce in practically same store sales. Also, Kors' bottom line hopped 73% year over year to $1.11 per share, easily outpacing the $0.86 consensus estimate.

Kors' worldwide stores also did well. In Europe, revenue rose 144% as practically identical store sales increased 73%. In Japan, revenue and practically comparable store sales developed 54% and 18%, respectively. Kors' strategic moves assumed an enormous part in the organization's outstanding quarterly performance.

It changed over its retail establishments into shop-in-shops, resulting in a 68% increase in wholesale net sales. This conversion prompted more interest for extravagance accessories and footwear products by increasing the visibility of its products on the shelves. On the once more of such strategies and development across distinctive markets, Kors is in a decent position to proceed with its outstanding performance going ahead.

Expansion plans

Kors is wanting to open 57 new retail locations in North America. In the wholesale segment, then, the organization will keep changing over division doors into shop-in-shop stores for accessories, footwear, ladies' wear, and menswear.

Moreover, Kors is looking to grow all the more in Europe by opening extra retail locations. Its products are resonating admirably with customers in the European area, prompting 140% revenue development in the second from last quarter. As a result, Kors plans to open 36 new stores in Europe in fiscal 2014. In the long run, administration thinks that Michael Kors can support around 200 retail stores in Europe.

The presentation of aroma and magnificence products has ended up being successful in the European advertise so far. Kors sees this segment as a catalyst for increasing its brand awareness in the area. Besides, the organization is arranging an expansion in the Asian and Middle Eastern markets.

The Chinese market

Kors as of late opened its 5,800-square-foot flagship store in China. The organization believes that China could be one of its biggest development drivers going ahead, and it sees the potential for 200 stores in the district. The fashion-attire industry in China is truly immense. As per Bain, the domestic extravagance showcase in China was worth $19 billion in 2013. So, Kors is making the right move by stretching in this district.

Then again, Kors will come up against more established rivals as Coach and Louis Vuitton in China. Coach's handbags, which cost around $400 in China, are seeing strong selection by Chinese customers. They were one of the reasons why Coach saw a 10% hop in equivalent sales in the nation in the three months finishing December.

Coach's designer bags have been a hit in China for quite a while, and the organization is looking to take advantage of its presence in the country by evaluating them right to address the developing white collar class' aspirations. Coach is also including Chinese-speaking staff to its American stores in an offer to establish an association with Asian customers.

The Chinese represent more than $1 out of each $4 spent on extravagance goods across the world, as per Bain. So, the Chinese business is a huge open door, and Kors is aggressively stretching here to snatch a bit of the pie.

Louis Vuitton, then again, has been feeling the hotness of the Chinese government's crackdown on corruption. The organization has seen declining interest in the Louis Vuitton logo because of a shift in the extravagance landscape to American brands such as Kors and Coach, while the presence of fakes has also been harming. To address these issues, Vuitton is advertising its vintage-style products in the nation. This move from Vuitton could be counterproductive, as Kors is pushing its designer handbags and clothing in China that are all the more in line with the times..

Kors is also looking to upgrade its travel business by opening all the more retail shops and standing shops at airports, especially in Asia. Furthermore, the organization is also propelling another website to improve customer interface and cooperation. Besides extravagance clothing, Kors' adornments business is also flourishing. Kors plans to extend the adornments segment in its retail and wholesale stores going ahead.

Conclusion

Kors has been an outstanding performer so far. The organization's development initiatives suggest that it still has far to go in various markets across the world, principally Europe and China. Also considering the organization's strong historical development rate and yearly earnings development projection of 25% in the following five years, it looks modest at a P/E proportion of 34. Thus, despite an extremely strong run in the past couple of years, Kors could still end up being a decent investment.


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