Fossil Inc (FOSL), Ralph Lauren Corp (RL), Michael Kors Holdings Ltd (KORS): Massive Growth Is Always in Fashion

To say that Michael Kors Holdings Ltd (NYSE:KORS) has been an impressive growth story is an understatement. The company’s growth has been nothing short of meteoric. In the current quarter, the company proved doubters wrong again reporting huge growth across the board. To me the only question left is, how long can this continue?

All Retailers Are Not Created Equal
I’ve read many articles that put Michael Kors and other high-end retailers in the same category as companies like The Gap, Kohl’s, and other well established companies. The usual assumption is, Michael Kors can’t keep growing at this pace, and when the slowdown comes, investors will rue the day they bought the stock.

There are two huge problems with this theory. First, Michael Kors Holdings Ltd (NYSE:KORS) can keep growing, as the vast majority of their sales are in North America. Second, this company isn’t trying to win the same customers as The Gap or Sears.

Let’s face it, if a customer spends $250 or more on a wristwatch, they aren’t worried about watching (pardon the pun) their pennies. Higher-end retailers seek a more affluent customer that isn’t as affected by the economy. Michael Kors customers aren’t coming to the company to buy one watch as a special item. Instead they are looking at multiple watches, a handbag, clothes, and other items. Paying $95 for a pair of shorts, or $145 for a shirt, is considered a normal expense and not outrageous.

Growth Like I’ve Never Seen
To suggest that Michael Kors Holdings Ltd (NYSE:KORS) can’t keep growing just doesn’t make sense. The company’s North American division makes up 90% of revenue, and sales were up 75%. In the Europe division, sales were up 112%, and this only represented 9% of revenues. The entire rest of the world, represented just 1% of revenue. With just 10% of sales internationally, any talk about slowing growth is very premature.

When you consider that same-store sales in North America were up an astounding 41%, and European same-store sales jumped 58%, clearly the company has its finger on the pulse of high-end fashion. In addition, Michael Kors is forecasting a jump to over $2 billion in sales for 2013, on the back of at least 20% same-store sales growth.

No One Can Beat Them, Is A Merger Possible?
When a company is growing this fast, I can’t help but wonder if another company might try to buy them out to benefit from their future growth? There are several companies that Michael Kors either competes with, or licenses their items to.