“Disco Pumpkin” Growth?
Calling a bloated, poufy, glitzy design a “disco pumpkin” has become one of the more famous Korsisms. At some point the earnings whispers become a roar and then it’s disco pumpkin and Heidi Klum says “You’re out. Auf wiedersehn.” It’s getting harder to beat with the whisper number being higher than guidance at $0.41 per share and revenue at or above $540.3 million.
Fashion stocks aren’t like toothpaste companies and competitor Coach learned that the hard way with an earnings disappointment of five cents per share leading to a 15% stock price decline. There are risks with a high end high flier like Michael Kors Holdings without any yield like Ralph Lauren or Coach. Coach has better gross margins of 73% to Michael Kors’ 57% and a yield of 2.50%. It still didn’t matter to the market.
While financial pundits keep calling Michael Kors Holdings an upstart the company was founded 32 years ago. It has an admirable return on equity of 46.12% and a five year EPS growth rate of 29.74% more than twice the rate of the sector.
Catty On The Catwalk
Whether fashion writers or retail analysts are more snarky, I don’t know, but the tendency to be unforgiving pertains to both. Michael Kors’ PEG is 1.23 compared to the .98 for Coach and 1.69 for Ralph Lauren meaning both Ralph Lauren and Michael Kors may be overvalued.
Any stumble on the catwalk for Kors would likely come from American sales where Fool Andrew Marder points out it gets the lion share of revenues. He also argues that Michael Kors Holdings needs to appeal to the aspirational middle class shopper but Michael Kors does have a very popular tier two line, Michael, with lower price points on its mens and womens apparel and accessories. The more affordable lines are also available at Macy’s. Cross Ledge Investments’ retail analyst Lori Wachs told Bloomberg TV on Black Friday that Michael Kors was the “must have” brand of the holidays.
Its Chinese and Asian sales should continue to be eyepopping as the glitzy brand is readily identifiable for status conscious shoppers even across a bicycle thronged street. In addition, its watches, small leather accessories, and handbags are very desirable as gifts in that culture.
Auf Wiedersehn Or Bravo!?
As growth rates rise quarter after quarter it’s like seeing how high a stiletto the supermodel can wear before she totters. The key is the growth rate and guidance. Anything else is just needless adornment. If Michael Kors Holdings and CEO John Idol can bring it home one more time for Q4 earnings then the analysts will applaud and Kors can take a bow just as he will for the hot ticket runway show the next day.
The article KORS: Earnings Have To Be “Fierce” originally appeared on Fool.com and is written by AnnaLisa Kraft.
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