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Michael Kors Holdings

KORS

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Shares of Michael Kors Holdings Ltd. (KORS - Analyst Report) are hovering close to their 52-week high of $50.69 after strong fiscal 2013 first quarter results, which included a whopping 70.0% earnings surprise. Furthermore, Zacks Consensus Estimates for this fiscal year and next have moved sharply higher in the past 7 days, underscoring its Zacks #1 Rank (Strong Buy).

With a year-to-date growth of 82.4%, this well-known global luxury brand is riding on the success of its multi-channel strategy, unique design and strong infrastructure.

Earnings Grow, Future Bright

On August 14, Michael Kors announced fiscal 2013 first-quarter earnings per share of 34 cents, beating the Zacks Consensus Estimate by 14 cents and growing 161.5% year over year.

Total revenue jumped 71% year over year to $414.9 million and surpassed the Zacks Consensus Estimate of $368 million. Solid sales growth in each of the company’s business segments and across all geographies drove the upside.

Sales at the retail segment grew 76% on the back of a 37.3% rise in comparable store sales and the opening of 76 new stores during the quarter. Net sales at the wholesale and licensing segments advanced 66% and 61%, respectively.

Gross profit was up 83% to $251.0 million, while gross margin expanded 420 basis points to 60.5%. Operating income in the quarter totaled $111.9 million, up 149% year over year, with operating margin growing 850 basis points to 27.0%.

Buoyed by the solid fiscal first quarter results, Michael Kors projects earnings for the second quarter of fiscal 2013 between 33 cents and 35 cents per share. Sales for the upcoming quarter are expected to be $490 million to $500 million, on the back of a 30% rise in comparable store sales.

For fiscal 2013, the company expects earnings between $1.32 and $1.34 per share, on net sales of about $1.8 million to $1.9 million. The company’s guidance is based on comparable store sales increasing in the mid- to high- 20% range.

Earnings Estimates on the Upside The Zacks Consensus Estimate for fiscal 2013 has grown nearly 20.5% to $1.35 per share in the last 7 days, as six of seven estimates were revised upward. The Zacks Consensus Estimate for fiscal 2014 advanced 17.3% to $1.63 per share on four upward revisions out of six. The raised estimates for fiscal 2013 and 2014 reflect year-over-year growth of nearly 68.2% and 21.3%, respectively.

Valuation Premium Justified

Michael Kors currently trades at a forward P/E of 36.8x, reflecting a significant premium to the peer group average of 14.4x. Similarly, on a price-to-book basis, shares are trading at a premium of 17.8x compared with 3.9x for the peer group. However, given the company’s compelling fundamentals, the premium is justified and well supported by its long-term estimated EPS growth rate of 32.1%. Moreover, the company’s trailing 12-month ROE of 33.0% against 20.6% for the peer group suggests that the company actively and efficiently reinvests its earnings compared to its peer group.

Chart on an Uptrend

Charts for Michael Kors’ show steady growth with a couple of peaks and notches since the start of calendar year 2012. Shares have gained a solid 82.4% year-to-date and currently trades near its 52-week high. Additionally, this newly-listed stock is currently trading above the 50-day moving average of $41.86.

Moreover, shares have consistently outperformed the S&P 500 year-to-date. The 82.4% year-to-date return for the stock compares favorably with the S&P 500’s return of 10.8%. Volume is fairly strong, averaging roughly 3,425K daily.

Founded in 1981 and headquartered in Tsim Sha Tsui, Hong Kong, Michael Kors is a well-known designer of luxury accessories and ready to wear products. The company sells branded women's apparel and accessories, and men's apparel. The company markets its products primarily under the MICHAEL KORS, MICHAEL MICHAEL KORS, and KORS MICHAEL KORS labels. Products under these labels include accessories, footwear, watches, jewelry, men’s and women’s ready to wear, and a full line of fragrance products. As of June 30, 2012, the company operated a total of 321 stores worldwide, comprising 253 company-operated retail stores and 68 retail stores operated by licensing partners.

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