Michael Kors Bucks Consumer Spending Trend

by Lawrence Meyers | June 14, 2012 8:30 am

I’ve been getting increasingly concerned about this jobless recovery. If people aren’t being hired, or if the jobs they have come with stagnant wages, and hidden inflation keeps rising[1], there won’t be any money to spend, and there won’t be any recovery.

That is, unless you’re Michael Kors (NYSE:KORS[2]). For the quarter, earnings per share more than doubled[3] compared to a year ago, to 22 cents (crushing the consensus of 16 cents). Revenue grew 58.3% to $380 million. Michael Kors also improved gross margins 570 basis points to 63.4%. But the most incredible number was same-store sales: They advanced 36.1%, driving total retail sales growth of 80%-plus.

Folks, most businesses are thrilled when they can manage same-store sales growth in the high single digits. Getting into the teens is cause for celebration. But 36% is akin to divine intervention. Furthermore, the growth wasn’t limited to the U.S. Despite terrible conditions in Europe, revenue grew 122% on same-store sales growth of 13%, with 20%+ expected later this year.

There’s simply no other way to describe this quarter than as a blockbuster, and there’s more to come. Michael Kors guided to revenues of $1.7 billion to $1.8 billion (a 45% year-over-year increase), earnings per share of $1.08 to $1.12 (a 38% year-over-year increase) and companywide same-store sales growth of 20%.

This is in stark contrast to a tough quarter Tiffany & Co. (NYSE:TIF[4]) reported earlier. Tiffany’s numbers gave me even more concern that the luxury segment might be starting to weaken[5], which could be awful news for the overall economy. The rich folks led the recovery, so it stands to reason they may lead a retreat. But other high-end retailers are seeing strong reports, so we haven’t reached that point. In addition, auto sales have been going strong.

Michael Kors earnings came on the heels of two terrible months for consumer spending data[6]. Both April and May saw a 0.2% decline, which is the first back-to-back decline in more than two years. All the data suggest to me that the wealthy folks continue to spend. Because they’re also likely to be the least leveraged demographic, that spending should continue.

As an investor, keep a close eye on luxury retailers for signs as to which direction the economy will go. Companies to watch include Saks (NYSE:SKS[7]), Coach (NYSE:COH[8]) and Nordstrom (NYSE:JWN[9]). If you see cracks in these earnings reports, it may be time to open up a short position.

Lawrence Meyers does not own shares in any company mentioned. He is president of PDL Capital, Inc.[10], which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com[11]. He also has written two books[12] and blogs about public policy[13], journalistic integrity[14], popular culture[15] and world affairs[16].

 

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