Since exploding onto the financial scene with its December 2011 IPO, luxury fashion company Michael Kors Holdings Ltd. has been one of the hottest names on the market. Kors’ strength is particularly impressive because few industries in the financial world are as fickle as fashion. Brands rise and fall each season as different looks come into and go out of style. The stocks behind the labels ride enormous waves of strength with popularity, and suffer terrible bouts of selling when retailers need to discount products to get them off the shelves. Over the past couple of years Kors has been on fire, but there are warning signs that Kors could be about to lose its spot on top.
(Graph from ChartIQ Visual Earnings)
The price of KORS shares took a tumble in July, and some analysts fear that the company could be in for a relatively weak quarter. Michael Kors products have been in vogue for years, but consumers in the fashion market can change their minds on a dime. Concerns primarily stem from the ubiquity of Kors products and worry over excessive discounting. In the high end fashion market exclusivity often plays a large hand in the popularity of brands. It wasn’t too long ago that Coach (COH) was the king of the hill in handbags.
Coach has been in a tailspin for years now. The company’s stock price has been deteriorating since early 2012 and the financial fundamentals have been stagnant, or worse.
Not too long ago Coach was the dominant player in the handbag industry. Then fake Coach bags started popping up on every corner of Canal Street selling for $20. Suddenly “Coach” bags were everywhere. Many of the bags you’d see people with were knock offs, but suddenly it wasn’t nearly as cool to be seen rocking Coach. Discounting your products isn’t quite the same as getting ripped off by imitators, but there is an important similarity. Once a brand becomes diluted, its hard to go back to asking consumers for the luxury prices that fetch high margins. Once the market is saturated with Michael Kors bags, it won’t be nearly as desirable to have one.
The Michael Kors company is on an outstanding financial run. Michael Kors has beaten the Wall Street earnings consensus in 8 straight quarters and has at least lived up to expectations from Estimize 7 of 8 times.
This quarter the contributing buy side and independent analysts on Estimize are forecasting that Kors will keep its streak of topping the Street’s consensus unblemished. However, this quarter 6 of 44 analysts on Estimize are expecting Kors to miss. There is much more uncertainty around KORS this quarter than ever before. Divided opinion is evident by the price action. Some investors are have been dumping shares ahead of the earnings report, driving the price down.
Although shares of KORS have fallen in recent weeks, contributors on Estimize also expect the company to beat sales estimates. While earnings and sales are extremely useful fundamentals to watch, there may be a more important number to look for on Monday.
As mentioned previously, luxury fashion brands such as Michael Kors rely on their image to demand high margins. The fastest way to see how healthy the Kors brand is will be to immediately look at this quarter’s gross margin. Last quarter Kors reported a gross margin of 59.9%, down ever so slightly from 60.1% a year earlier.
Competing in fashion requires walking a fine line between growing sales and protecting the company’s brand. So far Kors has done an excellent job in maintaining an attractive brand while offering products at a variety of price points, a very difficult balance to maintain.
At the end of the day what’s been propelling Kors forward is the remarkable rate of growth in both earnings and revenue while holding onto high margins.
On Monday the Estimize community is looking for Michael Kors to post year over year earnings growth of 39% and to increase sales by 37% compared to the same quarter of last year. These numbers are both quite high, but are totally reasonably given the even faster rate of growth reported over the past year.
Photo Credit: peddhapati
Recommended for You
NEWARK, N.J. (AP) — Actor-comedian Tracy Morgan has settled his lawsuit against Wal-Mart over a highway crash that killed one man and left Morgan and two friends seriously injured.Associated Press23 mins ago
The Chinese government on Tuesday took a step the U.S. government has long been calling for when it released a white paper outlining its general military strategy. The assurances sound fine, but there is a definitional problem that makes some of the Chinese government’s promises unsatisfying to its…The Fiscal Times
The first step to successfully transition to a one-income family is to get your spouse on the same page. If your significant other isn’t on board, you may find your efforts are sabotaged by your spouse’s spending or resentment that could irreparably damage your relationship. If you think your…Money Talks News
By Barani Krishnan NEW YORK (Reuters) - Oil prices fell by up to 3 percent for a second straight day on Wednesday as a resurgent dollar weighed on the market amid concerns that U.S. crude supplies may ...Reuters
The rupee fell as signs the U.S. will raise interest rates drove a gauge of the dollar to a five-week high and amid speculation India’s central bank favors a weaker local currency to boost exports. Federal Reserve Chair Janet Yellen said in a May 22 speech that if the U.S. economy continues to…Bloomberg
The last month of trading has been good for offshore drillers like Transocean (RIG), Diamond Offshore Drilling (DO), Seadrill (SDRL) and Noble (NE). RBC's Robert Pinkard and team, however, warn investors not to buy the "head fake" in offshore drillers: The offshore drilling group is up 27% off its…Barrons.com
May 27 -- Customer Growth Partners President Craig Johnson discusses Tiffany, Michael Kors and retail earnings. He speaks on “Bloomberg Markets.”Bloomberg Video
Shares of Michael Kors fell by more than 23% on Wednesday after the company reported...Business Insider
Per latest market buzz, Microsoft (MSFT) is the frontrunner in acquiring the Canadian handset manufacturer, BlackBerry Limited (BBRY).Zacks
Burger King is dominating fast food. The company recently surpassed Wendy's to become the...Business Insider
While sentiment on MLPs is improving, caution still remains, and stock selection will be the key going forward as the sector continues to heal.24/7 Wall St.
If you own a home and pay for a mortgage, you could reduce your payments by an average of $3K a year. Here's how it works.
Market timers are stubbornly bullish amid signs of weakness, writes Mark Hulbert.MarketWatch
May 26 -- Home prices in 20 U.S. cities rose at a faster pace than projected in the year through March, reflecting a limited number of available properties on the market. Bloomberg's Julie Hyman reports on “Market Makers.”Bloomberg Video
Abu Dhabi's Etihad Airway's contribution to the U.S. economy will almost double to $6.2 billion by 2020, it said on Wednesday, in an apparent counter to allegations that government subsidies gave it an unfair edge over competition. The airline will support the American economy with 23,400 jobs and…Reuters
Long-serving FIFA President Sepp Blatter was set to be easily reelected to his post on Friday. Despite numerous accusations that the soccer governing body is rife with financial maleficence and bribery and despite its increasingly disastrous attempt to stage World Cup 2022 in Qatar, Blatter was…The Fiscal Times
DETROIT (AP) — Under pressure from U.S. safety regulators, Ford is recalling nearly 423,000 cars and SUVs in North America because the power-assisted steering can fail while they're being driven.Associated Press
First thing Tuesday morning, via memo, the 3,000 Charlotte-based Time Warner Cable Inc. (TWC) employees — along with their counterparts across the globe — heard the news: The cable giant had officially agreed to be acquired by Charter Communications Corp. (CHTR) in a $55 billion cash-and-stock…American City Business Journals