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Michael Kors Holdings (KORS): Luxurious Future

 February 14, 2013 09:52 AM

(By Kevin Donovan) Luxury retailer Michael Kors continues to outstrip expectations even as it continues to raise them.  The stock price shows it, up more than 80% over the last year and up 22% in 2013 alone.  Is it too rich for new investors?  We don't think so.  Despite its gallop, we believe the stock has room to move higher and recommend purchase.

Michael Kors trades at 49.21 times trailing 12 months' earnings and 30.10 times forward estimates.  Meanwhile, EPS are expected to leap 162% this year, 32% next year and average gains of about 30% per year over the next five years, according to analysts' estimates.  That puts the PE to earnings growth multiple at just 1.65,  too cheap, in our view, given Kors' habit of blowing past expectations.

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Taking the midpoint of the trailing 12 months' PE and the forward PE results in our price target of $79 a share, some 25% higher than its current price of about $62.  Our price target is predicated on the belief that high price-to-earnings multiples on a trailing and forward basis still don't capture potential earnings growth.

 On Tuesday, the company announced third-quarter results that blew past the Street's estimates, logging EPS of $0.64 vs. the average estimate of $0.41.  Net income for the quarter of $205 million was more than triple that of the year-ago period.  More importantly, Kors said its outlook for fiscal 2013 called for earnings of $1.80 per share, way above the previous analysts' average forecast of $1.56 per share.

John Idol, chairman and chief executive officer, said in a conference call that Kors continued to execute in all geographic areas.   The biggest gain was in North America, where comparable-store sales were up 41% in the quarter, marking the 27th consecutive quarter of comp-store gains in the region.  The company also opened 14 new retail stores in the region during the period.  In Europe, comp-store sales increased 58% and were up 11% in Japan.  Total revenue was up 67%, 112% and 103% in North America, Europe and Japan, respectively.

[Related -Michael Kors Holdings Ltd. (KORS) Q1 Earnings Preview:]

It's apparent, Kors expects growth to continue, and with the global economy on the mend, we think the promise is solid.  Indeed, with its record of underpromising and overdelivering, we like the odds that it's not too late to own this stock.

Based in Hong Kong, Kors went public in December 2011. It engages in the design, marketing, distribution and retail of branded women's apparel and accessories and men's apparel.  The company operates in three segments: retail, wholesale and licensing.
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