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Michael Kors Holdings Limited Message Board

  • floppy_6 floppy_6 Aug 10, 2013 2:07 PM Flag

    KORS's growth potential

    The analyst community had been treating KORS and UA quite biasedly. KORS, although consistently grew the business nearly at 50% AGR, was frequently ambushed by market rumor of growth slowdown. KORS, again and again proved its wolf-coming-once-more by presenting fabulous ER quarter over quarter. Vs. KORS's 50% AGR in 2013, UA merely grew 20+%. KORS is selling at forward PE of 22 while UA is selling near at 40. Funny how frequent I heard over CNBC "Yeah! Kors is a fine company but expensive". Yet they claim that UA is a unique growth story. True! UA still has a large white space for expansion - Europe. But let us review how big the white space KORS has.

    1) Europe: KORS has 49 stores in Europe now, targets to expand to 200 stores and $500 millions sales. In most recent quarter, Europe contributed 12.7% while FOSL contributed 24.2% (or $170 millions) and GES in 2012 obtained 35.3% from Europe or $939 millions. The respective total sales in 2014 are projected as $3.68 billions from KORS vs. $3.52 billions from FOSL vs. $2.69 billions from Guess?. While Europe sales are matured business for FOSL/GES, one could imagine that KORS's Europe estimate is way too conservative. It needs to at least double to $1 billions sales to match the growing pattern of Guess's. In CC, KORS mentioned that in several regions of Europe, KORS is either the most demanded brand or #2. So, the vision to become a more popular brand than Guess? isn't too optimistic. It is also noted that Guess? in Europe has a higher margin than all other regions (OPI 37.9% from Europe).

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    • Funny! As I review my post three months ago, at that time KORS posted Q2 earning with the remark that Europe is expected to grow to $500 millions. I commented that Europe is at least a $1 billion market for KORS to match the growth experience of Guess? Now today in CC, Idol revised his Europe's expectation to $1 billion.

      Gee! I couldn't not admire myself.

    • 2) Store expansion: KORS has 249/30/49/77/32 stores currently in N. America/Japan/Europe/Far East/Airports regions and is targeted to expand to 400/100/200/200/50 stores in respective regions. That is to expand the current 328 owned stores (or 442 stores including licensed) to 950 stores eventually. Although some cannibalization may occur along the way of expansion. That could be offset by company's action to buy back the licensed stores (26% of total stores). The total target stores (950) is more than doubled than the current existing stores.

      3) Shop-in-Shop in department stores: I believe it still at 500 stores now. It is being forecasted to grow to 1150.

      4) Jewlery shop-in-shop: Currently 60 and targeted to grow to 500.

      5) Men's business: Currently, KORS sold 90% of watches to women. In CC, the management mentioned three potential market 1. men's sportswear 2. men's leather goods 3. men's watches. All three together could potentially bring in $1 billions business to KORS.

      6) Far East: Currently this region is still at infant stage and its license is owned by insider - sportswear holding inc. I guess that previous secondary issues sales for the partial reasons to obtain the capital needing to expand in this region. And eventually the company may buy back the license in this region and hence, grow the topline sales in this region.

      Adding up all of above, the story from KORS is far to cease.

      • 2 Replies to floppy_6
      • great stuff, these talking heads its just best not to even turn it on...its just a big game...i'm confident that you just need to sit back and watch the show...there is little worry with this stock...shareholders will be rewarded over the next 3 qtrs maybe longer...its just getting good. There is one report I did like is that IBD related KORS as the new gun compared it to PCLN. If KORS is in the same ballpark as PCLN then it hasnt even made a double yet. I surely like what I see on the sales, new products, new store opening=100+...good luck

        Sentiment: Hold

      • Floppy, I think what we are counting on is KORS management ability to execute. I owned UA in 2007 and there EPS reports were too erratic. They did not have a savvy management team. Michael Kors and John Idol have been in this business more than 30 years. Michael Kors is an extremely gifted designer, and John Idol knows his way around the retail-apparel industry.

        I am confident they will execute on the plans that they have laid out. They have been extremely conservative with their financial guidance. However, they have been bold and confident in their growth strategies. One of the areas I have been more than impressed with is their social media growth strategy. This tactic appeals to a different demographic.

        The luxury retail market will continue to grow, and Michael Kors is well positioned to take market share from all competitors.

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