Michael Kors value spree

August 5, 2017

The only people who seem to think Michael Kors (NYSE:KORS) is in decline are the analysts. The company is doing extremely well and is unfairly priced by the market. I recommended the stock in my article, Don’t Misinterpret Heidi Klum: Buy Michael Kors, when it was trading at $82 per share. The stock has done nothing but decline since then, with it trading between $69 and $70, as of this writing. In this article, I reiterate my bullish stance on the stock and am advising you to buy more of the stock at these depressed valuations. KORS likely had a great holiday season without having to discount substantially. I will be looking at the overall retail climate, which is positively affected by depressed gas prices. I will go over the social media trends to support how well the company is doing. Finally, I will look at the valuation of the company.

Michael Kors announced a great 2nd quarter in November. Revenues increased 42.7% and same-store sales growth was 16.4%. Diluted EPS was up 40.8% to $1. The comparable sales for stores in North America were up 10.8%, which is a decrease from the unsustainable levels that we have seen in the past. As the market matures I expect that we see similar numbers in the future. This does not mean the brand’s popularity is declining. The brand does not need to discount to gain sales as so many analysts seem to be overly concerned about. On this point the CEO John Idol made this comment on the conference call:We run the exact same cadence in terms of our promotional activity in our stores that we have for whatever it is seven or eight years and we are running the same, we’re involved in the same promotions at department stores.

When most investors look at Michael Kors (NYSE:KORS) stock they probably see a growth brand that is currently doing fantastically, but may fall out of favor with consumers at any point. It is rational to feel this way when looking at these types of fashion companies because fashion styles are short lived. As Heidi Klum says on “Project Runway”, which the man Michael Kors was previously a judge on, “One day you’re in. and the next day, you’re out”. The most obvious example of a fashion company losing touch with the consumer is Coach (NYSE:COH). The company had a tough fiscal 2014 with negative revenue growth. I believe that although fashion can be very difficult to compete in, Kors will thrive in the long term as its designer has been working in the industry for over 30 years and is now in the enviable position where he sets the fashion trends. Comparing Michael Kors to Coach is similar to comparing Facebook to Myspace. I am not implying that Coach will end up like Myspace. I am saying that the Michael Kors is poised to have success in the long term, even as its growth will inevitably slow as the company matures.The reason why management likely wants to avoid comparisons with Coach can be seen in this chart.

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