The last couple of days have been a whirlwind for luxury stocks, with several of the market’s key names like Michael Kors Holdings Ltd (NYSE:KORS), Movado Group, Inc. (NYSE:MOV) and Tiffany & Co. (NYSE:TIF) all reporting last quarter’s earnings.
Some of the results were encouraging. Some of them were … well, less than encouraging. In all cases though, these luxury stocks dished out some major post-earnings movement.
That being said, the knee-jerk reactions to the recent spate of earnings reports within the high-end industry may or may not have been the appropriate ones.
So, which of these tickers are buys, and which are best avoided? The answers may be a bit surprising.
Movado Group (MOV)
With just a quick glance at Wednesday’s headlines it would be easy to conclude Movado Group was a name best left alone. Not only did the luxury watchmaker see its per-share income slump in the first quarter, but sales fell as well, sending MOV down 3% for the day.
The stock’s dip, however, is actually a buying opportunity.
Last quarter, operating profits for Movado Group fell from 29 cents per share to 25 cents, just missing the earnings figure of 26 cents per share of MOV analysts were collectively looking for. Sales were down just a bit as well, though would have been up 5% had it not been for the strong U.S. dollar.
The market wasn’t impressed, but that’s a big mistake.
Calling a spade a spade, the biggest impasse Movado Group faced last quarter wasn’t a lack of high-end, luxury spending from consumers. It was a disinterest in expensive watches as those would-be customers were waiting patiently for the launch of the similarly expensive Apple (NASDAQ:AAPL) watch.
While the impact has been and will continue to be palpable, the bulk of the drag on Movado Group’s accounting statements should have run its course by now. With investors more than pricing in the worst-case scenario since late-2013 though, MOV belongs on a list of luxury stocks to buy.
Tiffany & Co. (TIF)
Congratulations to anyone who owned a take in Tiffany & Co. before the close of trading on Tuesday. Wednesday’s 12% jump easily pushed TIF to the head of the class, so to speak, among all luxury stocks that particular day.
Now get out.
Tiffany & Co. did a great job of reversing its fortune last quarter, offsetting the negative impact a strong U.S. dollar had on its U.S. sales by drawing a bigger spending crowd in Europe during its first fiscal quarter of this year.
Specifically, the company earned 81 cents per share of TIF versus expectations of only 70 cents. Revenue of $962 million handily topped the $919 million analysts were calling for, with sales in Europe — largely driven by a weak Euro — growing a healthy 2%.
So what’s wrong with that? Nothing, other than the fact that the better-than-expected first quarter results were (1) still weaker than its year-ago numbers, and (2) the stock’s still priced at a frothy forward-looking P/E of 20.3 that leaves no room for even the slightest stumble.
It’s going to take U.S.-drive sales to pull TIF out of its funk, and with the greenback on the road to recovery, the current quarter’s outlook results aren’t apt to be stellar for TIF or most other luxury stocks.
Kate Spade & Co. (KATE)
Two weeks ago, Wedbush analyst Morry Brown opined that shares of Kate Spade & Co. (NYSE:KATE) could soar 40% on the heels of sharply-improved earnings. Brown specified that KATE hould be trading $39 by some point in 2016, adding that most investors underestimate how rapidly earnings could grow from here.
BB&T followed suit on Wednesday, upgrading KATE to a “buy” following the Wedbush upgrade to an “outperform” earlier in the month. And, given the company’s 14% uptick in sales last quarter, it would be easy to understand the optimism.
There’s just one problem with the optimism from Wedbush and BB&T: Neither outfit explained how the company was going to quell the slowdown in sales growth. Prior to the first quarter’s 14% improvement, Kate Spade & Co. has posted sales growth of 30% or more in each of its past four quarters.
While Kate Spade & Co. may still be doing better than its peers, it’s also still suffering from the same overall headwinds crimping peers like Coach Inc. (NYSE:COH) and Tiffany & Co. Without a plausible, compelling growth plan in place, KATE actually belongs on a list of luxury stocks to sell.
Michael Kors Holdings (KORS)
Yes, Michael Kors Holdings has been a disaster of an investment since early 2014. After peaking at $101.04 in February of last year, KORS has now given up more than half of that value, with the biggest chunk of that dip materializing on Wednesday following its fiscal fourth-quarter report.
The results themselves were OK. Operating profits were up from 78 cents per share of KORS a year ago to 90 cents per share this time around. Sales were up nicely, too, to the tune of 18% … but same-store sales fell 5.8%.
The real driver for Wednesday’s 23% plunge from KORS stock, however, was the outlook for the current year. Michael Kors Holdings is now looking for a per-share profit between $4.40 and $4.50 on sales of somewhere between $4.7 billion and $4.8 billion. Even the upper ends of both ranges were short of Wall Street’s fiscal-2016 estimates.
Given the numbers at hand, it might be surprising to suggest KORS is one of only two luxury stocks worth buying at this time. There’s a reason behind all of it, though.
While trailing and projected numbers are ugly to be sure, there’s also something capitulatory about yesterday’s sharp drop. There’s also something slightly capitulatory in the company’s rhetoric. With things now at the “can’t get any worse stage” — as long as that’s true — all of a sudden that forward-looking P/E of 9.9 is looking like a bargain.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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