Shares of fashion company Michael Kors Holdings (KORS: Charts, News) rallied over 20% this week after the Hong Kong-based company reported record earnings that topped all Wall Street estimates by a wide margin. Michael Kors, which went public last December and has since rallied 107%, reported a first quarter profit of 34 cents per share, or $68.65 million, on revenue of $414.9 million. This was a 185% increase in earnings and a 71% surge in revenue from the prior year quarter. Analysts had been expecting Kors to earn 20 cents per share.
The company attributed its strong earnings to improved margins and revenue growth in its retail, wholesale and licensing business segments. For the current quarter, Kors also guided strongly, anticipating earnings between 33 cents to 35 cents per share on revenue between $490 million and $500 million. Analysts had been expecting Kors to earn 28 cents per share on revenue of $422 million. Kors also expects same-store sales to grow by 30%.
In the first quarter, Kors’ same-store sales grew by 37%. Retail net sales rose 76%, while wholesale net sales increased by 66%. Licensing revenues rose by 61%. The company opened 76 new stores during the quarter. Gross margin increased from 56.3% to 60.5%.
CEO John Idol was optimistic regarding the company’s strong earnings and upbeat guidance. “Our results demonstrate the strong momentum of the Michael Kors brand and the continued execution of our key growth strategies. Michael Kors’ luxury fashion designs are resonating globally with our customers.”
Kors posted strong growth in both North America and Europe. Despite current economic woes across the continent, same-store sales in Europe surged 24%, while same-store sales in North America fared even better at 38%. Kors’ strong growth in Europe bucked the trend of a stream of poorly performing retailers blaming the region’s troubles for lackluster earnings.
The company has a small presence in Asia, with plans to expand heavily into China to face off against primary rival Coach (COH: Charts, News). Kors also opened new stores in Japan and Taiwan to establish footholds into the lucrative Asian market. Kors’ Japanese stores posted revenue growth of 190% to $4 million, with same-store sales rising 21%. Its Taiwan location, in Taipei 101, has not been open a full year yet.
Kors is widely seen as the strongest challenger to Coach’s previously unassailable position as the king of “affordable luxury.” Like Coach, Kors sells handbags and accessories, but it also offers a wider selection of clothing and footwear than its rival. Kors’ watches, which are comparable to timepieces from Fossil (FOSL: Charts, News), which actually produces Kors-branded watches, are also a strong source of revenue. Kors has also gained free publicity from the hit show “Project Runway,” in which designer Michael Kors serves as a judge and mentor to upcoming fashion designers.
In comparison to Kors’ blowout numbers, Coach’s same-store sales in North America, its primary market, barely eked out a 1.7% gain, missing the analysts’ expectations of 5%. Coach’s 35% market share of the U.S. handbag market will also likely be eroded further by Kors, which controls nearly 10%.
Kors is still fundamentally an expensive stock, trading at 35 times forward earnings with a 5-year PEG ratio of 1.46. However, with such strong growth potential, the stock is likely to surge higher if it can meet its own lofty targets, and so far the global economy has yet to dent this solid growth story in an out-of-favor sector.
Other News About KORS
Michael Kors Q1 Results Top View; Shares Up 14% On Strong Outlook
Michael Kors blows away Wall Street estimates.
Michael Kors Holdings Ltd (KORS) Posts Quarterly Earnings, Beats Estimates By $0.14 EPS
Kors shares rally strongly on upbeat guidance.
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