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Why Michael Kors Is Surging

Michael Kors said Tuesday it expects fourth-quarter revenue between $790 million and $800 million, based on comparable-store sales growth of 15% to 20%. 

It forecast fourth-quarter earnings per share between 63 cents and 65 cents. Analysts expect earnings of 65 cents a share.

For the full year, the company now expects total revenue in the range of $3.18 billion to $3.19 billion, based on comparable-store sales growth of approximately 25%. Earnings are expected to be in the range of $3.07 to $3.09 a share for the full year. "We believe that our consistently strong performance is attributable to the creative vision of Michael Kors and his talented design team as well as the distinctive jet-set in-store experience that we provide in both our retail stores and our shop-in-shops," John D. Idol, the company's chairman and CEO, said in the earnings statement. "We remain very excited about our future growth prospects as Michael Kors continues to gain momentum as a global luxury lifestyle brand."

"Revenue in North America grew 51% and comparable store sales increased 24%, with performance driven primarily by accessories and watch offerings. In addition, our North America wholesale segment generated another quarter of strong sales growth, particularly in our accessories and footwear categories, and we continued to benefit from shop-in-shop conversions in department stores," Idol said. "In Europe, revenue grew 144% in the third quarter, with exceptional comparable store sales growth of 73%, which we believe was driven by growing brand awareness and demand across regions. Lastly, in our licensing segment, revenue increased 59%, with continued demand in watches and eyewear."

Gross profit increased 61.6% to $619.5 million, and as a percentage of total revenue increased to 61.2% compared to 60.2% in the year-earlier quarter.

Retail net sales rose 51.3% to $503.4 million driven by a 27.8% increase in comparable-store sales and 98 net new store openings over the year before. Wholesale net sales increased 68.2% to $461.4 million, while Michael Kors' licensing revenue increased 59% to $47.4 million.

At quarter's end there were a total of 533 Michael Kors stores worldwide, including 395 retail stores and 138 additional stores, including concessions, operated through licensing partners.

Results were "a substantial beat, with strength in every line item, every region, and every segment. KORS clearly took share this holiday season and did not have to do so at the expense of margin," Wells Fargo analyst Paul Lejuez wrote in a note. He rated Kors at "market perform."

"While we can't poke any holes in the quarter, and clearly there were no signs of a slowdown (comps accelerated in fact), we believe impressively high sales productivity levels create extremely difficult comparisons and will lead to slowing comps at some point. As the stock reacts to the great news today (2/4), we see the risk-reward as balanced as we weigh the near-term momentum with an eventual (and unpredictable) comp slowdown," Lejuez wrote.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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