Michael Kors Holdings
by Zacks Equity ResearchSeptember 26, 2012 | Comments : 0 Recommended this article: (0)
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On September 20, Michael Kors updated its second quarter and fiscal 2013 guidance, raising the projections for earnings and sales while throwing light on its quarter-to-date comparable store results.
The company now expects earnings for the upcoming quarter between 38 cents and 40 cents per share, compared to the earlier forecast of 33 cents to 35 cents. The sales guidance range was raised to between $510 million and $520 million, versus the earlier projection of $490 million $500 million.
For fiscal 2013, the company expects earnings between $1.39 and $1.41 per share, compared to the previous guidance of $1.32 $1.34. Sales for the year are expected at $1.85 billion $1.95 billion, against the earlier projection of $1.8 million $1.9 million. The companys guidance is based on comparable store sales of about 30%, increasing from the earlier guidance of a mid- to-high 20% range.
Quarter-to-date, comparable store sales in the retail segment increased 45.1%, driven by strength across all regions. By region, comparable store sales were up 45.1% in North America, 49.7% in Europe and 16.0% in Japan.
FQ1 Earnings Grow
On August 14, Michael Kors released impressive fiscal 2013 first-quarter results, including an earnings beat, solid sales growth and an encouraging future outlook. Earnings per share of 34 cents outperformed the Zacks Consensus Estimate by 70.0% and grew 161.5% year over year.
Total revenue jumped 71% year over year to $414.9 million, surpassing the Zacks Consensus Estimate of $368 million. Sturdy sales growth in each of the companys business segments retail, wholesale and licensing segments and across all geographies drove the upside.
Sales at the companys 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 grew 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 up 850 basis points to 27.0%.
Earnings Momentum to the Upside
Michael Kors estimates for both fiscal 2013 and fiscal 2014 have shown significant upside in the last 7 days, as estimates were fine tuned with the companys raised forecast. The Zacks Consensus Estimate for fiscal 2013 grew nearly 5.2% to $1.42 per share, whereas the Zacks Consensus Estimate for fiscal 2014 showed a 2.4% upside to $1.74. The raised estimates for fiscal 2013 and 2014 reflect year-over-year growth of nearly 75.6% and 22.1%, respectively.
Valuation Premium Justified
Michael Kors currently trades at a forward P/E of 38.8x, reflecting a significant premium to the peer group average of 14.7x. Similarly, on a price-to-book basis, shares are trading at a premium of 19.6x compared with 4.0x for the peer group.
However, given the companys compelling fundamentals, the premium is justified and well supported by its long-term estimated EPS growth rate of 32.1%. Moreover, the companys trailing 12-month ROE of 33.0%, against 19.7% for the peer group, suggests that the company actively and efficiently reinvests its earnings compared to its peer group.
The charts of Michael Kors show steady growth with a couple of peaks and notches since the start of calendar year 2012. Shares of this apparel store retailer have gained a robust 100.7% year-to-date and currently trade near its 52-week high. Additionally, shares of this newly listed stock are currently trading above its 50-day moving average of $50.89.
Moreover, Michael Kors has consistently outperformed the S&P 500 year-to-date. The 100.7% year-to-date return for the stock compares with the S&P 500s return of only 14.1%. Volume is fairly strong, averaging roughly 3,189K 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, mens and womens 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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