When it was announced recently Michael Kors would sell 3 million shares of the company he founded, Michael Kors Holdings Ltd (NYSE:KORS) , in a secondary offering it wouldn’t have come as a huge shock to long-time longs. But those who entered the stock recently should have been aware that the designer sold a huge stake at the first lock up expiration opportunity in March and the second in September. Kors is what some would call a “weak hand.” When he sold in March it took quite a while for investors to regain confidence in the stock. This is the fourth time he will be selling shares.
Is he just nervous after his Fashion Week runway show where the models wore goofy fur hats with earflaps, a sort of Fargo meets Fifth Avenue look? Is he just greedy or is he reasonably taking some profits off the table? He will still own plenty of shares, a 2.4% stake, but with such a momentum stock he should be aware his sales have an impact on investor confidence. Before the 2011 IPO he had a 22% stake.
As Carrie Bradshaw used to write on every episode of Sex and The City, the show that was more of a paean to fashion than sex, “I can’t help but wonder…” why he and his biggest investor, PE firm Sportswear Holdings Limited, were selling so much. Sportswear Holdings Limited is selling 19.7 million shares, more than half its stake. And don’t forget, CEO John Idol is also planning to sell 2 million shares. Why sell, especially after reporting strong earnings… even “fierce” considering how high expectations were.
Michael Kors reported on Feb. 12 a rise of revenue of 70% year over year with $636.8 million and EPS of $0.64, more than doubling from the same quarter in 2012. Margins increased and guidance was raised with especially bullish views on global luxury sales. This handily beat expectations taking the name to an all-time high. Over 225 institutions hold shares in Michael Kors, but some hedge funds have been moving out since last quarter. Watching Kors stock perform is like watching a daredevil, peeking through the fingers covering your eyes, thrilling to watch but nerve wracking, too.
Longs would probably agree holding it feels like holding a speculative stock, but it has no debt, its growth has been phenomenal, and the PEG is just 1.07 with a forward P/E of 24.48. It even has $405.78 million total cash. If only management would cool it with the secondaries this stock would be much less volatile.
Coach, Inc. (NYSE:COH) Plunges
Michael Kors has certainly been outperforming closest luxury accessories rival Coach, Inc. (NYSE:COH), with Coach hitting a 52-week low on Feb. 21. Part of the downbeat news hitting Coach is that longtime CEO Lew Frankfort will retire in 2014. Under his management he brought what was a small niche leather goods seller to become a publicly traded company with a market cap of $13.37 billion. He will sorely be missed but has promised a seamless transition.
One of the most noteworthy items of interest about Lew Frankfort is how much Coach stock he continues to hold — 2,064,547 shares as of Dec. 26. The stock is down some 35% over the last year and not even the news it was branching off into apparel has helped. It’s trading at a 13.14 P/E now with a 2.5% yield and a PEG of .96. The dividend payout ratio is a reasonable 31% and it has a return on equity of 53.18%.