Canaccord Downgrades Michael Kors

Canaccord on Tuesday downgraded

from Buy to Hold due to an expected decrease in gross margins, and lowered their one-year price target from $97.00 to $76.00. Camilo Lyon and Pallav Saini, analysts at Canaccord, wrote, “While we believe the KORS brand has many category extension opportunities to drive growth (e.g., footwear, men's/women's apparel, jewelry, fragrance), we are becoming increasingly concerned that the ubiquity of KORS handbags/accessories (~70% of sales) across all channels (full price retail stores, outlets, department stores, and off-price retailers) is perpetuating the need for a heightened promotional strategy to drive traffic and conversion. As such, we believe GM pressure will intensify in NA while the strong margin contribution from Europe will diminish as comps there also decelerate to ~20% from 60% last year.” Investors are concerned about brand quality as deep discounting at department stores such as

has hurt Michael Kors' image as a quality brand. As consumers gravitate towards the sale rack, the company's profitability will be hurt and gross margins will decrease. Shares of Michael Kors closed Monday at $71.56.