Why Michael Kors Is Surging

NEW YORK (TheStreet) -- Michael Kors (KORS) shares shot up 18.7% to $90.98 on Tuesday after the luxury accessories and handbag maker showed the world that consumers were certainly buying its merchandise over the holiday period.

The Hong Kong-based company said that revenue surged 59% to $1 billion in the December-ended quarter (its third fiscal quarter) from $636.8 million in the year-earlier quarter. Comparable-store sales jumped 27.8% in the quarter.

Michael Kors' reported net income rose 76% to $229.6 million, or $1.11 a share, from a year earlier.

Analysts, according to Thomson Reuters, expected the company to post revenue of $859.9 million and earnings of 86 cents a share.


WATCH: Michael Kors Proves It is the Must-Have Handbag for the Holidays

The luxury lifestyle company's results are in stark contrast to struggling Coach (COH), which last month reported quarterly profit and sales down 15% and 5%, respectively, as the company executes on a turnaround to better compete with Michael Kors.

"Michael Kors took Coach by the throat and squeezed all the life out of it during the holiday season," Brian Sozzi, CEO and chief equity strategist of Belus Capital Advisors and a RealMoney contributor, wrote in an email. "This one single company is responsible for Coach waking up to this realization: it must reinvent itself, quickly. At the core of Michael Kors' throat squeeze: bright product, better made product, better store windows, snazzier looking associates that drive excitement for a non-discretionary purchase."

Sozzi has a "buy" rating on Kors.

Michael Kors' results are also a refreshing contrast to the disappointing holiday sales results from many retailers, specialty and department combined.

Michael Kors shares hit a new intraday 52-week-high of $93.02 on Tuesday.

Michael Kors had "amazing momentum in a holiday quarter when many retailers and luxury brands saw weak sales" such as soft results from Moet Hennessey Louis Vuitton and comp declines from Coach, said retail expert Marie Driscoll of Driscoll Advisors.

There really was "no bad news in this earnings report and [KORS is] making infrastructure investments to support continued global growth, Driscoll wrotes in an email, though she is cautious on merchandise markdowns in Michael Kors' domestic retail stores and in the department stores. "The European opportunity is significant with global tourists and Europeans alike."

That said, Driscoll recommended investors wait for a pullback from Tuesday's stock surge before buying shares. "I would let the shares digest these gains and wait for a lower entry point," she said. Driscoll has a "buy" rating on Coach based on confidence of a longe- term turnaround and a "neutral" rating on LVMH.

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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