by Alyssa Oursler | February 12, 2013 11:44 am
Heading into this week’s earnings report, I noted that Michael Kors (NYSE:KORS) was facing some high expectations. Analyst estimates had been steadily climbing in the months leading up to today’s announcement, with the average settling at earnings of 41 cents per share — higher than the company’s guidance between 37 and 39 cents.
Well, now those concerns about the high bar seem almost laughable. KORS reported EPS of 68 cents, crushing expectations by 65% and more than doubling its year-ago profits.
The impressive numbers are making investors — and probably Michael Kors himself — smile this morning. The designer’s stock was up 11% as of midday Tuesday, bringing its total gains since the December 2011 IPO to a whopping 160%.
In that same time period, rival luxury retailers Coach (NYSE:COH) and Tiffany & Co. (NYSE:TIF) haven’t had quite the same sparkle, down 14% and up 1%, respectively — the former tumbling after it reported earnings earlier this year.
So why is KORS getting love when other big luxury names are struggling of late? Here are five reasons:
Forget all the big-picture nonsense about broader holiday spending — whether it was talk of increased hiring or the impact of the fiscal cliff or cries of slipping sales. Just look at the numbers.
In the quarter ending Dec. 29, Michael Kors posted a 70% year-over-year increase in revenue, with total sales coming in at $636.8 million. And the breakdown of that headline number is just as eye-popping. Take a look:
You get the point.
That 50% increase in licensing — what allows shoppers to pick up Kors products at discounters like TJ Maxx (NYSE:TJX), fellow luxury retailers like Fossil (NASDAQ:FOSL) or at department stores like Macy’s (NYSE:M) — is nice. But what really matters are the company’s retail locations.
Good news there! Kors comes with plenty of room to expand its own retail presence, especially compared to rival Coach. It has just fewer than 300 retail stores total, with 66 new locations added in the most recent quarter alone. Coach, in comparison, has more than 500 stores in North America, over 180 in Japan and nearly 100 in China.
Comparable-store sales are booming at Kors, but overall sales could also get a nice boost as the company continues adding more locations across the globe.
“Better-than-expected” has become the norm at KORS. In the previous four quarters, the company has blown forecasts out of the water, beating the consensus by 23%, 60%, 37% and 122%. In the most recent quarter, analysts had their hearts set on sales growth of just under 45% (again, its growth topped 70%), and again, on the earnings front, Kors was 65% ahead of expectations — expectations that had been ticking upward for months.
At some point, this could (and probably will) become a double-edged sword. If Wall Street is trained to expect massive beats on high expectations, a miss, a mere “meet,” even a not-good-enough-beat could be enough to send investors into a panic. But for now, Kors isn’t giving us any reason to think that day is coming soon.
KORS’ full-year earnings estimate has already been raised twice. In September, it was increased to $1.12 to $1.34, while it November it was changed to $1.48 to $1.50 per share.
Well, make it thrice. This morning, the new range was set to between $1.80 to $1.82 per share, well ahead of analysts’ forecast of $1.56 per share.
These numbers are great, but they all stem from a much simpler fact: Kors is the big name in fashion right now. While we often try to lump all luxury or retail together, KORS doesn’t necessarily deserve to be lumped in. It was a hot IPO, keeps posting hot numbers and has hot prospects … all because its products are hot. I have friends with several of the designers’ watches and friends who want nothing more than one of his name-brand handbags; that’s what’s driving the company’s success at the end of the day.
Fashion fads don’t last forever. Coach was the big name when I was growing up, and while it’s still around, its products don’t seem as coveted as they once were … and that in many ways is reflected in its recent performance.
But right now, shoppers are clamoring for Kors. You should be clamoring for KORS.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.
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