As if higher-end apparel Michael Kors Holdings (KORS) needed any more help keeping its share price inflated, when the company upped its full-year outlook on Tuesday morning, the value of KORS stock jumped another 18%.
Now the gap between it and its weaker peers like Ralph Lauren (RL), Coach (COH), and Vera Bradley (VRA) has moved from “respectable” to “embarrassing.” For perspective, VRA stock is down 5% since the end of 2012, RL stock has fallen back to only a 3% gain since for the same timeframe, while COH stock id down 17% since the end of 2012. Meanwhile, KORS stock is up 77% for the past one year and one month.
But Michael Kors has earned its soaring stock price. The label has been a pure growth machine, ramping up its top line to the tune of 20% over the prior four quarters, while earnings per share having grown 13% in that time.
More important to current and prospective shareholders, it’s not as if KORS stock is going to hit any major headwinds in the foreseeable future, either, with 2014’s outlook expecting more of the same big-time growth.
It’s not a trend that can be chalked up to strong high-end consumer spending, either. Vera Bradley, as an example, saw revenue fall 3% in 2013, and the pros are only looking for a 3% improvement in the top line this year. Worse, earnings per share of VRA stock are projected to fall from last year’s anticipated $1.70 to $1.43 this year. Coach’s results and outlook are equally tepid. Even long-standing perennial favorite Ralph Lauren can’t keep pace with the big growth of Michael Kors.
The numbers say it pretty plainly — Michael Kors has its finger on the pulse of what luxury-seeking consumers want, while brands like Vera Bradley, Coach, and Ralph Lauren don’t.
Those same numbers, however, beg one question that inquisitive investors are wondering … what exactly does Michael Kors do differently to make it such a winner, and can it persist? The answer has four parts.
- It’s more of a fortunate circumstance than a business decision, but one of the best things Michael Kors Holdings has going for it is that it’s still a relatively young brand name, only coming onto the label scene in a meaningful way since 2004 — give or take — when Michael Kors became a name via Project Runway. Coach and Ralph Lauren have all been “big” since the 80s, and Vera Bradley wasn’t far behind them. It matters, because sheer age can catch up with a name. Consumers tend to like new names along with their new looks and new clothes. Michael Kors has years to go before hitting the brand-name-fatigue wall that’s hampering its peers.
- While Kors bags, accessories, and jewelry are already priced higher than most of the brands consumers compare them to, Michael Kors’ “look” actually looks much like those being sported by the uber-wealthy … the goods that are priced completely out of reach for the 99%-ers. For consumers wanting to emulate what they see their favorite celebrities toting around, a Micheal Kors product is the most accessible way to do that.
- Along the same lines of Michael Kors being a new brand, retailers are compelled to occasionally update the brands it features in stores. Coach used to be in the spotlight, but because consumers love “new and different,” retailers are making a bigger deal of Kors merchandise now. In fact, department stores prefer to promote the Kors brand because it’s generally higher-priced than bags from Coach or Vera Bradley, which in turn means greater margins for the store. Again, Kors could benefit from that special attention for at least a few more years.
- Michael Kors is diving knee-deep into men’s wear, and men’s cologne. Until very recently, Kors strictly designed women’s clothing and accessories. Though the men’s apparel market isn’t nearly as big as women’s apparel, by leveraging the name its already developed, Michael Kors should make a dent in this new arena, and KORS stock should get plenty of support on the heels of that growth.
The bottom line? Kors’ competitive advantages are clear, and KORS stock owners don’t need to worry too much about other players like Vera Bradley, Coach, and Ralph Lauren clawing their way back to threaten KORS stock any time soon. See, in the fashion industry, the one thing more important than a fresh fashion is the buzz behind your brand name … because hype begets more hype.
And there’s plenty of hype to fuel KORS stock for the near future.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.