Michael Kors’ steady jump in profits to continue

ANALYSIS_ Michael Kors Holdings Ltd. (KORS) has reported a profit´s jump in for the second quarter, strongly boosted by sales of accessories, which have helped the Hong Kong-based retailer to overcome other luxury long-established

brands. Revenue grew by 39 percent.

"Our strong financial results in the second quarter underscore Michael Kors' expanding brand awareness and global presence," summarised the quarterly figures Chief Executive John Idol said.

The company once again lifted its earnings’ outlook for the full year 2014. Following the news, shares of Michael Kors rose 6 percent on the New York Stock Exchange.

For fiscal year 2014, Michael Kors now expect earnings to come in the range of 2.77 to 2.81 dollars per share on revenues of 2.9 billion to 3 billion pounds. In comparison 21 analysts polled by Thomson Reuters currently expects full-year 2014 earnings of 2.78 dollars per share on revenues of 2.99 billion dollars.

This is the second time the company lifted its initial full year outlook after it did it so in August while reporting first quarter results. At the time, the company estimated earnings of 2.67 to 2.69 dollars per share with revenues in the range of 2.8 - 2.9 billion dollars. Meanwhile, the company continues to see comparable store sales growth of about 20 percent, stressed ‘Forbes’.

The Hong Kong-based fashion retailer's second-quarter profit surged to 145.8 million dollars or 0.71 dollars per share from 97.8 million dollars or 0.49 dollars per share last year. On average, 21 analysts expected a profit of 68 cents per share for the quarter.

Revenue for the second quarter grew 38.9 percent to 707.4 million dollars, substantially ahead the last year´s 513.1 million dollars yet below the market consensus revenue estimate of 725.91 million dollars. Comparable store sales increased 22.9 percent.

”Great demand” for Michael Kors´ luxury accessories help growth

Idol said the revenue growth reflected "strong acceptance" of its fashion luxury products. "Overall, we continue to see great demand for Michael Kors as a global luxury lifestyle brand," he added.

Sales in North America were steady with a 31 percent growth while comparable store sales increased 21 percent. In Europe, sales rocketed with a 101 percent hike and comparable store sales growth of 45 percent. Michael Kors' second-quarter gross margins advanced to 60.8 percent from 59.3 percent last year.

The stock had its ‘buy’ recommendation restated by analysts at Canaccord Genuity in a research report issued to clients and investors on Monday. They currently have a 90 dollars price target on the stock, which implies a potential upside of 19.32 percent from the company’s current price. “While traffic trends continue to be tepid for much of retail, we believe the strength of the KORS brand is resulting in share gains from key competitors whose fashion remains stale, and thus see upside to our estimates. We view KORS’ fast fashion accessories model as its core competitive advantage that is precluding other brands from keeping pace with it, along with its rapid 9x inventory turns. We reiterate our buy rating heading into Q2 results.”

In a report published Tuesday, Citigroup analyst Oliver Chen reiterated their ‘buy’ rating and 82 pounds price target on Michael Kors.

“We remain impressed with accessories over apparel and KORS remains a key stock pick within this context. Most impressed by comps (+22.9 overall and +45 percent in Europe, gross margins +150bps, and call outs of strength in watches, and shop-in-shops contributing to +30 percent wholesale growth. Inventory growth above revenue at +45.2 percent (vs. total rev 38.9 percent) but growth model makes this acceptable and our store checks indicate minimal near-term markdown risk. On the call we will look for global, eCommerce, supply chain, and inventory updates — KORS is also likely to tell investors growth and margin streak will not continue forever. We rate KORS Buy with a TP of 82 dollars on 25x.”

The company added 83 net-new stores since this time last year for a total of 352 Kors operated shops. Same store sales grew 22.9 percent. CEO John Idol said, “The outstanding revenue performance was driven by strong acceptance of the fashion luxury products created by Michael Kors and our design teams, as well as the exceptional jet-set in-store experience that we offer to customers in our retail stores and in-store shops.”