The maker of luxury goods, Michael Kors (KORS, Financial), has delivered a better-than-expected performance for the second quarter of 2015. Its results beat Street estimates on both the top as well as bottom lines handily. New stores openings and significant growth in its comps fueled its performance for the quarter. The retailer said that the strong results for the quarter reflect its strong execution.
Its revenue for the second quarter rose 42.7% to $1.1 billion as compared to $740.3 million in the same quarter a year earlier. Also, its net income for the quarter increased 42% to $207 million or earnings of $1.0 per share as against net income of $145.8 million or earnings of $0.71 per share in the corresponding period last year. The Street was estimating earnings of $0.88 per share on the revenue of $978 million for the quarter.
Growth strategies to gear up its performance
The retailer is making significant progress with its growth strategies that continue to accelerate its growth performance. Its growth strategies focus on expansion of retail presence, growth in its comp store, conversion of department stores, building an e-commerce platform and growing its global business. The company remains solid to expand its global retail presence through new store openings and expansion in key locations.
The company has opened approximately 121 new stores in the past twelve months. It sees incremental growth for additional 700 company-owned retail stores across the world. The retailer has a total of 473 company-owned stores. It also operates approximately 176 additional locations with its licensing partners. Meanwhile, the company is also engaged in relocating selected stores. This relocation should assist the company in better execution of its women’s footwear, ready-to-wear, watches and jewelry. Its same-store performance grew about 16% in the reported quarter.
It remains on track to open around 50 new stores in Europe this fiscal year and sees growth opportunity for about 200 Michael Kors retail stores in the region in the long run. The company is focusing on both retail as well as wholesale presence in the region. It is aggressively promoting its products, building brand acceptance and consumer connection through its exceptional product offering and unique jet-set experience.
It expects Europe to generate revenue of approximately $1.5 billion in the long-run. Its comp grew around 41% in the second-quarter. It is also seeing growth at its comps in Japan. It has approximately 42 locations in the region and the company remains on track to open new flagship store in Kobe in Japan this fiscal year. Japan had same-store sales growth of 53% in the second-quarter.
Further, the retailer remains committed to grow wholesale shop-in-shops with great fashion products and a luxury shopping experience. The company continues to observe strong growth momentum in its wholesale segment. It is seeing solid strength in accessories and footwear business coupled as well as for its women’s ready-to-wear category. Further, the company has expanded its European business and successfully converted approximately 299 wholesales doors internationally into branded shop-in-shop.
This move should help the company carry forward the momentum in accessories, footwear, women’s wear and men’s wear going forward. The company now has 1,969 shop-in-shops across the world. Also, the company plans to convert an additional 750 department store doors into shop-in-shops.
In addition, the company is busy developing an e-commerce platform, which is expected to roll out globally after the United States' comer site launch in early September this fiscal year. The company is also looking forward to launching an e-commerce site in Canada in 2015. Japan and Europe will have e-commerce sites in 2016.
Strong guidance
Michael Kors has released guidance for the third quarter and full year. The retailer is expected to record its revenue in the range of $1.27 to $1.3 billion. Its earnings are forecast to range between $1.31 and $1.34 per share for the quarter. The high ends of the guidance meet the street estimates for both revenue and earnings. For the full year, Kors projects its revenue to be in the range of $4.3 to $4.4 billion and earnings to range between $4.13 and $4.18 per share.
Conclusion
Kors provides a robust investment opportunity. It is aggressively executing its growth strategies that should accelerate its performance in the future. Its earnings are estimated to grow at CAGR 22.53% greater than average industry CAGR of 16.32% for the next five years that indicate solid growth in the long-run. Moreover, it has attractive short term gain with earnings growth of 29.80% this year and 15.80% for next year respectively.
The company is currently trading at the trailing P/E of 19.88 and forward P/E of 15.61 that signifies fair valuation that has a lot of rooms to grow in the future. It has strong profit and operating profit margins of 20.11% and 30.03% respectively for trailing twelve months. Its balance sheet carries total cash of $1.01 billion and has no debt outstanding. It has operating cash flow of $648.61 million and free cash flow of $298.91 million.
