Michael Kors Holdings, Ltd.
(KORS - Analyst Report
) reported its fourth straight quarter with a positive earnings surprise in mid November, as fiscal second-quarter EPS surpassed the Zacks Consensus Estimate by 22.5%. With strong brand portfolio, an innovative fashion design and a potential long term growth rate of 31.4%, this Zacks Rank #1 (Strong Buy) global luxury lifestyle brand offers an attractive investment opportunity.
Fiscal Q2 Earnings Soar
On November 13, Michael Kors reported fiscal second-quarter earnings per share of 49 cents, which soared 96% year over year and topped the Zacks Consensus Estimate at 40 cents.
Total revenue surged 74% from last year to $532.9 million, surpassing the Zacks Consensus Estimate of $520 million. Sturdy sales growth in each of the company's business segments and across all geographies drove the upside.
Sales at the retail segment grew 82% on the back of a 45.1% rise in comparable store sales and the opening of 66 new stores. Net sales at the wholesale and licensing segments grew 75% and 13%, respectively.
Gross profit was up 80% to $315.9 million, while gross margin expanded 200 basis points to 59.3%. Operating income totaled $157.9 million, significantly up from $70.0 million in the year-ago quarter, with operating margin rising 670 basis points to 29.6%.
Michael Kors projects earnings for the fiscal third quarter between 37 cents and 39 cents per share with sales of $525 million to $535 million. Comparable store sales are expected to rise by mid-20%. For fiscal 2013, the company expects earnings between $1.48 and $1.50 per share on net sales of about $1.86 billion to $1.96 billion, based on a rise of about 30% in comparable store sales.
The Zacks Consensus Estimate for this fiscal year, ending March 2013, is currently $1.54 per share, or almost 8% better than 90 days ago. Meanwhile, the Zacks Consensus Estimate for next fiscal year, ending March 2014, has gained 11.5% in that time to $2.03, which is nearly 32% better than the previous year.
Expensive, Yet Justified, Valuation
Michael Kors currently trades at a forward P/E of 35.3, a price-to-book (P/B) multiple of 13.5 and has a P/S multiple of 6.5. All of these figures are at premiums to the peer group averages.
However, given the company's compelling fundamentals, the premium is justified. Moreover, the company's trailing 12-month return on equity (ROE) of 45.8%, against 13.5% for the peer group, suggests that it actively and efficiently reinvests earnings compared to its peer group.
Shares of Michael Kors have been rising since late-December 2012 and reached a new 52-week high of $58.62 on November 2, 2012. The stock is currently trading above its 50- and 200-day moving averages, which stand at $52.00 and $47.53, respectively. Moreover, this newly listed stock has consistently outperformed the S&P 500 over the last six months. Volume averages roughly 3,455K daily.
Based 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 under the Michael Kors, MICHAEL Michael Kors, and KORS Michael Kors labels. As of September 29, 2012, the company operated a total of 349 stores worldwide, comprising 269 company-operated retail stores and 80 retail stores operated by licensing partners. The market cap of the company is $10.6 billion. Other stocks in the textile-apparel sector with a Zacks Rank #1 (Strong Buy) include Gildan Activewear Inc. (GIL), Joe's Jeans Inc. (JOEZ) and G-III Apparel Group, Ltd. (GIII).
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