This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Michael Kors' Shares Are in the Doghouse

Stocks in this article: KORS COH M JWN

This story has been updated from 11:16 am ET with additional information in the fourth and fifth paragraph.

NEW YORK (TheStreet) - Michael Kors (KORS - Get Report) shares are in the doghouse with investors, as analysts voiced concerns over the fashion accessory retailer's profitability going forward.

The analysts' notes come following news on Monday in which The Wall Street Journal noted that the Hong Kong-based retailer known for its "jet set" fashion goods should take a lesson or two from its competitor, Coach (COH), specifically it was a word of caution against over-expansion. Shares dropped 7.7% to $79.08 on Tuesday -- a level not seen since early February.

Shares have fallen approximately 13% since it reported its fiscal fourth quarter earnings on May 28.

Greenberg: Kors Analyst Action -- Coincidence or Not?

5 Retail Companies That Outperformed in 2014

Michael Kors Rises Following Earnings Beat

Why Michael Kors' Stock Is Falling Today

On Tuesday, a flurry of analysts voiced caution over Michael Kors. Maxim Group analyst Rick Snyder downgraded shares to "hold" from "buy" and his 12-month price target by $24 to $85. Snyder cited concerns that "domestic sales have weakened to a greater degree than anticipate," according to the research note.

"Our checks indicate that this has led to increased markdown activity, which is likely to pressure gross margin," Snyder wrote. "We believe that current concerns over Michael Kors' gross margin will lead to multiple contraction as investors lose confidence in their near-term growth prospects."

Sterne Agee analyst Ike Boruchow, who rates shares "neutral," also sounded the alarm. He says that while sales growth at the retailer is still "in flight," he too worries that margins could be "nearing the end of the runway," according to a note on Tuesday. Boruchow cut his 12-month price target by $8 to $92, and lowered his fiscal 2015 estimates by 5 cents to $3.95 a share and fiscal 2016 earnings estimates by 15 cents to $4.55 a share.

"Investor sentiment has shifted significantly post Q4 results, with questions increasingly focused on the trajectory of top line, as well as sustainability of margins," Boruchow penned in a note to clients on Tuesday. "While sales growth is likely to remain strong in the near term, our recent store work has found broader/deeper markdowns within retail stores and key wholesale accounts. Whether these 'red flags' are a tipping point in profitability remains to be seen; that said, we recommend remaining sidelined until we gain greater visibility."

Boruchow continued: "Elevated inventory levels, broader discounting, and investment needs may all combine to pressure margins in the near future, and as a result, we believe it will be difficult for the stock to outperform materially despite solid top-line trends."

Citigroup analyst Oliver Chen slashed his 12-month price target on the company by $19 to $98 on Tuesday. Chen, who rates Kors "neutral," is worried the stock could be "range bound" over the near term, based on the answers to a survey Citi completed that had 62 respondents. Concerns include: "additional commentary on lack of newness and limited selection; elevated clearance levels in full price stores (30-50% off promotion for 30% of thestore); a risk of moderating store productivity levels given notable store expansion cadence," according to the note.

While sales trends were "strong" in April and May, according to Chen, up +15.15% and +13.71% respectively, sales growth slowed to +7.8% in June. Chen tweaked his full-year earnings estimates lower by 5 cents to $3.95.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs