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Michael Kors: What Makes an IPO Work

Sure, the IPO market is tough, but investors just want good deals


When talking to many tech CEOs, they’ll often say the IPO market is brutally harsh. Of course, they point to deals like Facebook (NASDAQ:FB), Pandora (NYSE:P), Zynga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN).

Despite all this, the real story is something different. If anything, the IPO market is a great place — that is, so long as a company can sustain its growth.

Exxon Makes Another Forward-Looking Move
Exxon Makes Another Forward-Looking Move

A prime example is Michael Kors (NYSE:KORS), a luxury apparel operator. The company came public in December at $20 and has since gone on to hit nearly $55.

The mastermind of KORS is Michael Kors, who started the company over 30 years ago. He not only has a genius for anticipating the next big trends but is a tireless promoter. Consider that he’s a judge on Bravo’s Project Runway.

But Kors didn’t distract himself by taking the CEO spot. Instead, he’s the chief creative officer and honorary chairman. For the CEO, Kors brought on John Idol, who’s a veteran of the luxury market, having been the CEO of Donna Karan from 1997 to 2001.

He has certainly brought his magic to Kors. For example, Idol has been smart to aggressively expand the Kors footprint. These include building retail outlets as well as establishing in-store shops. The company has also expanded in Europe and Asia.

And yes, the financial results have been standout. In the latest quarter, KORS revenues spiked by 71% to $414.9 million, and profits came to $68.6 million (34 cents per share).

Interestingly enough, last week Kors upped its earnings guidance for the current quarter to a range of 38 cents to 40 cents a share, up from 33 cents to 35 cents. For the full year, the projection is for earnings of $1.39 to $1.41 per share. The former guidance was for $1.32 to $1.34 per share.

Capitalizing on this, KORS priced a secondary offering today for 23 million shares. While this move could be a sign of a top, it’s far from fool-proof. Keep in mind that insiders may sell their positions for a variety of reasons, such as to diversify their wealth.

Instead, investors should be more concerned about valuation because KORS trades at a hefty price-to-earnings ratio of 55.

Then again, if the company continues its torrid growth rate — which seems to be the case — then the stock price is likely to remain fairly robust. In other words, there’s probably more upside for the stock as KORS continues to show that it knows how to keep up the growth ramp.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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