Michael Kors Upgraded to Strong Buy

Zacks Investment Research upgraded Michael Kors Holdings, Ltd. (KORS - Snapshot Report) to a Zacks Rank #1 (Strong Buy) on Jan 19. Strong demand for brands and assortments, along with innovative fashion designs are the rank drivers for this stock.

Why the Upgrade?

Michael Kors has been witnessing 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%. The company also has a bright outlook for the upcoming quarter, the results of which are due next month, owing to growing demand for its products and the ongoing strength in watches. The long-term expected earnings growth rate for this stock is 31.4%.

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. 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, reflecting growing demand for Michael Kors’ products.

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 in mid-20% and expects 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.

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. The company expects net sales of about $1.86 billion to $1.96 billion based on a rise of about 30% in comparable store sales. Management also expects exceptional comparable store sales to boost long term growth.

Estimates have increased for the fiscal 2013 and 2014 over the past 60 days, after the strong fiscal second quarter results and bright outlook for the upcoming quarter. The Zacks Consensus Estimate increased 1.3% to $1.54 per share for fiscal 2013, while it grew 4.3% to $2.03 per share for fiscal 2014.

Other Stocks to Consider

Another stock in the textile-apparel sector which holds a Zacks Rank #1 (Strong Buy) is Gildan Activewear Inc. (GIL - Snapshot Report). Other stocks worth considering are Hanesbrands Inc (HBI - Analyst Report), Cherokee Inc (CHKE - Snapshot Report), Pvh Corp (PVH - Snapshot Report) and G-III Apparel Group, Ltd. (GIII - Snapshot Report), all of which hold a Zacks Rank #2 (Buy).