The luxury apparel and accessory maker Michael Kors (KORS, Financial) is one of those fast-growing companiesthat refuses to stop its momentum. It is destined to beat analysts’ expectations in each quarter, and its recently reported first quarter was not an exception. However, Kors’ great numbers did not lead to a great rise in share price. Let us get into the details.
The facts
Driven by higher demand for its products, revenue surged 43.3% over last year, clocking in at $919.2 million. The same-store sales too grew a whopping 24.2%. This indeed is a very important metric for any retail company since it excludes the effect of new store openings and closings during the period. Hence, this metric shows the actual growth of the company’s top line.
In fact, Michael Kors registered growth across all the regions, including domestic and International. The best performing region was Europe, which climbed 128% over last year’s quarter. Strengthening wholesale business and a comparable store sales growth of 54.2% resulted in higher sales.
Sales in North America also rose 30%, along with a same store sales growth of 18.7%. Shop in shop conversions and growing wholesale segment drove sales higher. Japan too posted a 89 % increase in sales, accompanied with same store sales growth of 48.8%.
Kors’ earnings jumped to $0.91 per share, much higher than the expectation of $0.81 per share. Hence, the company managed to control its costs efficiently. This was also reflected in its margins, which expanded by 20 basis points to 62.2%. The company managed to expand margins despite higher promotions and advertisements.
Racing ahead of peers
Michael Kors has been on a surge since inception. Its extraordinary performance enabled the company to outpace its toughest rival Coach (COH, Financial). Coach is now unable to match up to Kors’ performance as customers are attracted to Kors more than Coach.
Coach’s recent performance makes the picture clearer. Although it met the Street’s expectations, its sales fell 7% to $1.14 billion over the previous year. However, analysts were expecting it to be $1.09 billion. Also, earnings stood at $0.59 per share, higher than the estimate of $0.53 per share. One of the key reasons for the decline in the top line is decreasing North American sales. Demand in the North American market has been slowing, and Coach is unable to revive it. This quarter sales dropped 16% over last year. Therefore, it plans to close 70 stores in the region.
However, stronger sales in China and Europe helped the company. China has been the largest growing market for Coach, which registered a 20% increase in sales during the quarter. However, Kors’ performed much better than Coach.
Also, Michael Kors provided a bright outlook for the year. Its top line for the year is expected to be in the range of $4.25 billion to $4.35 billion and earnings are estimated to be in between $4.00 and $4.25 per share.
Bottom line
Michael Kors is definitely an attractive pick. Its continuous endeavor to provide the best designer collection to its customers and expansion into the international markets should help the company grow. Moreover, it plans to expand its customer base to include menswear also. This can prove to be a great move for the retailer. Therefore, Kors is definitely a rewarding pick.
