This once out-of-favor designer brand is now being touted by Wall Street. The shares have received lots of analyst attention lately including: upgraded by Canaccord Genuity to ‘Buy’, initiated at Barclays to ‘Equal-Weight’, and upgraded by Oppenheimer to ‘Outperform’.
Michael Kors Holdings (KORS)
From Pivotal Point Trader
At one time, Michael Kors Holdings (KORS) was trumpeted by Wall Street as the next great retail brand. Stores sprung up all over the globe. Then it fell out of favor, hard.
And now, Michael Kors is in the midst of a comeback. Its business and share price have reached an important point of pivotal inflection.
My research suggests an important move higher is on the horizon.
In early 2014, Michael Kors management seemed to have the Midas touch. Its collections of designer handbags, shoes and accessories were flying off the shelves. Its share price reached $100. An analyst at Jefferies called it the “go to” brand. Another at Cowen noted it was gaining market share across a number of categories at a dramatic pace.
Six months later, Michael Kors’ gear was no longer cool. Everyone was wearing it. Industry pundits began to make comparisons to Jordache, Tommy Hilfiger and Coach. Inventories piled up. Shares crashed, reaching $33.50 in July 2017.
Fashion is so fickle. Brand managers want to be trendy and upscale, but not so much that the label becomes ubiquitous. It’s the kiss of death.
After a brush with death, Michael Kors is now on the other end of the spectrum. It’s so uncool that trend-setting Millennials are returning to the brand. In the parlance of our times, it’s retro.
To their credit, Kors managers have been furiously reworking the brand. Earlier this year the company announced the $1.2 billion acquisition of luxury shoemaker Jimmy Choo. And while the company still relies heavily on women’s ready to wear, footwear and men’s accessories, smartwatches are playing a bigger role.
Its ACCESS line of watches is licensed to Fossil, and they work with both Android and Apple’s iOS. John D. Idol, Kors’ chief executive, recently told analysts he expects smartwatches should be 25% of sales by the end of 2018.
To enhance the brand, Kors is reducing exposure to department stores and cutting promotional sales. Year over year, the company had 42 fewer promotional days during the first fiscal quarter of 2018. While Idol admits this will reduce overall sales, he sees it as absolutely necessary to bolster the exclusivity of the brand longer-term.
Investors seem to agree. Kors was the second best-performing stock in the S&P 500 last quarter, advancing 34%.
The stock strength means the longer-term down trend has been broken. This sets up a bullish reversal. The next key resistance point is $59. A rally to that point would test the 2016 highs.
In the first quarter, Kors had $125 million in profits on $952 million in sales. Although both numbers were lower year-over-year, they exceeded the model forecast. Gross margin of 60% was in line, and overall margins increased 120 basis points on the strength of improved international sales.
Based on improved share price and business momentum, I’m looking for an important move higher over the next year.
Jon Markman, Pivotal Point Trader, issues@e.moneyandmarkets.com, 1-800-291-8545, October 11, 2017