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The Only Thing That Outperforms Michael Kors Holdings Ltd (KORS) Is Its Valuation

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In the face of economic slowdowns, tepidity, and anything in between, the premium retail brands have often outperformed their less-expensive brethren. For few companies does this ring truer than for fashion house Michael Kors Holdings Ltd (NYSE:KORS). Though only on the public markets for 14 months now, the stock has experienced a near vertical 135% climb. In its most recent quarter, the company again showed investors and analysts that it is a force to be reckoned with in the ultra-competitive fashion retail business. But considering its sky-high valuation, should you be interested in this top-notch retail shop?

Michael Kors Holdings Ltd (NYSE:KORS)Stay the Kors
Since its market debut, Kors has impressed investors with remarkable growth and sound management. The cautious yet substantial expansion efforts have helped lead the company’s stock performance far past competitors such as Coach, Inc. (NYSE:COH) and Ralph Lauren Corp (NYSE:RL). Throughout the last year, Kors grew top and bottom lines at an impressive clip, topping analyst estimates every single quarter — and by a large margin.

For the company’s quarter and full-year guidance report, the trend proved itself yet again. In a business where image is everything, Kors has about as good a rep as any other in its field. The Hong Kong-based design and retail house told investors and analysts that it would continue its focus on making and selling more accessories — a fantastic source of growth for the company in recent quarters.

For the third quarter, Kors was able to grow revenue by a chunky 70% year over year. This compares to Coach’s stumbling year — it’s slowest sales growth since the company went public 10 years ago. Kors’ bottom line was nearly as impressive, with $0.64 per share over $0.20 the year before. A major difference between Kors and Coach, besides the growth and stock performance, is in strategy. Kors continues to push its core line of handbags and other accessories that resonate very well with lifestyle-brand shoppers. Coach attempted to rebrand itself after surviving a major economic downturn by sticking to its guns as a high-fashion brand. This gives definition to the phrase “The enemy of good is better.”

Other numbers from the company were equally encouraging, such as comparable sales rising more than 40% year over year and very encouraging guidance.

Very encouraging guidance
Before we get to company-specific guidance, it is worth noting that the macro environment for luxury brands such as Michael Kors and Coach is looking increasingly favorable. As mentioned in a Motley Fool blog article, Altagamma Studies predicts global demand for luxury goods will increase to $310 billion by 2014. That number was just $230 billion in 2011. While this number doesn’t guarantee anything for any individual company, it does bode well for Michael Kors’ seemingly unstoppable market share crusade.

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