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Bull of the Day

Looking for a fashion retailer with fresh, powerful branding and worldwide growth across multiple product lines and sales channels? Look no further than Michael Kors (KORS - Analyst Report), the company bearing the name of the award-winning designer of luxury clothing and accessories with over 300 retail stores worldwide.

Michael Kors sells branded women's and men's apparel and accessories, including footwear, watches, jewelry, and a full line of fragrance products. With their "accessible luxury" line, they can be found in middle-tier department stores like Macy's as well as high-end venues such as Nordstrom (JWN - Analyst Report)and Saks.

Shares of this Zacks #1 Rank (Strong Buy) have more than doubled in price since their IPO in December of 2011, riding on the success of its multi-channel strategy, unique designs and strong infrastructure. I first recommended buying KORS in the summer of 2012 around $40.

The KORS story remains the same with rising earnings estimates on the back of strong fiscal second-quarter results. In-fact this global luxury lifestyle brand has delivered positive earnings surprises in the last four quarters with an average surprise of 58.7%.

A Long Runway for Model Growth

Michael Kors declared its fiscal second-quarter results on November 13 with earnings per share of 49 cents, soaring 96% year over year. Total revenues surged 74% from last year to $532.9 million, surpassing the Zacks Consensus Estimate of $520 million. Quality 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, reflecting growing demand for Michael Kors' products, including a strong watches segment.

Taking consumers and investors by storm in 2012, the 30-year old brand and vision of the founder unfolded into a business capable of consistently raising guidance during its first year as a public company -- and this has kept analyst estimates rising. The long-term expected earnings growth rate for this stock is 31.4%.

Europe and Asia Opportunities

The solid demand for Michael Kors' brands, implementation of growth strategies and growing brand acceptance in Europe provided upside potential in the second quarter. Likewise, Michael Kors is optimistic about the fiscal third quarter and expects comparable store sales to rise nearly 25% with total sales in the range of $525 million to $535 million. It projects earnings in the range of 37 cents to 39 cents per share, almost double the prior-year quarter earnings of 19 cents.

With a presence in 74 countries, KORS looks to capitalize on the Asia appetite for luxury brands like Coach (COH - Analyst Report) and Tiffany. Their accessible luxury collection will likely give them an added competitive advantage as the products and price points cater to an emerging middle class in China.

Overall, the company also anticipates impressive results in fiscal 2013 with earnings in the range of $1.48 and $1.50 per share, significantly higher than the prior-year earnings of 80 cents per share. Net sales of about $1.86 billion to $1.96 billion are projected based on a rise of about 30% in comparable store sales. KORS delivers its Q3 FY2013 results before the market opens next Tuesday February 12.

Valuation Premium Justified

Michael Kors currently trades at a forward P/E of 36X ($56 / $1.54), reflecting a significant premium to the peer group average in the mid teens. Similarly, on a price-to-sales basis, shares are trading at a premium of 6x compared with 1x 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 over 30%. Moreover, the company's trailing 12-month ROE of over 35% is nearly double the peer group's, suggesting that the company actively and efficiently reinvests its earnings compared to its peer group.

Finally, of 47 companies in the apparel industry group to which it belongs, KORS is 13/47 in Sales, 8/47 in Net Income and ranked 3/47 by Zacks for appreciation.

If you want a strong young fashion retailer ready to gain market share around the world, consider Michael Kors before or after its earnings report next week.

Kevin Cook is a Senior Stock Strategist with Zacks.com

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