Founded by fashion designer Michael Kors in 1981, KORS has evolved from an American luxury sportswear wholesaler into a global accessories, footwear and apparel company with operations in 85 countries. Accessories, including handbags and small leather goods, account for 80% of total company sales.
Through its two main brands, Michael Kors and MICHAEL, Michael Kors targets a broad customer base while retaining a premium luxury image. The Michael Kors name reflects the ultimate in luxury, with handbags and small leather goods retailing from $500 to $6,000, footwear from $300 to $1,200, and women’s apparel from $400 to $4,000.
The company is successfully taking market share in a growing global accessories market by manufacturing fashionable products and by using a multi-tiered pricing strategy that appeal to a wide range of shoppers. With 82% of 2013 total revenue coming from the U.S., Michael Kors has extensive possibilities for international expansion. In addition, e-commerce offers huge untapped growth opportunities.
Sales surged 52% for the 12 months ended 12/31/13 while EPS soared 73% to 2.93. Results were driven by impressive same-store sales growth of 22%, the opening of 100 company-owned and 50 licensed retail stores, and the conversion of 500 wholesale customers into highly profitable store-within-a-store formats.
KORS is benefiting from strong consumer demand in the U.S. for fashion handbags, small leather goods and watches. KORS has an expanding product offering (including men's leather accessories and a new fragrance and beauty collection), and increasing brand recognition in Europe and Japan. Sales and EPS will likely climb 20% during the 12 months ending 12/31/14.
KORS shares are not cheap at 31.6 times current EPS, but earnings are forecast to rise 30% per year during the next five years. The balance sheet is very strong with no debt and lots of cash available to fund growth initiatives. KORS does not pay a dividend. I expect KORS shares to advance to my Minimum Sell Price of 121.78 within one year.
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