Noted luxury fashion retailer Michael Kors (KORS, Financial) had earlier published its third quarter results for the FY 2014, which has done well to exceed expectations in terms of revenue and earnings per share. There were initial reports of the stock falling by as much as 1.16% in early February and 3.4% fall before the earnings were declared, but the Michael Kors now has been given a "buy" rating by Bank of America Merrill Lynch (BAC, Financial). Robert F. Ohmes, an analyst with the financial major, has given a high target price of the stock at $100 a share, even though it remains far away closing at $68.98 the previous week.
Looking at from a competitive angle, a set of 31 analysts who have been following the Michael Kors stock closely, 16 of them have given a "buy" rating just like the Bank of America Merrill Lynch, 13 of them have given a "hold rating." The general consensus about the target price is $87.96 a share despite having lost 8.15% on the stock on a year-to-date basis.
The reasons for the Bank of America Merrill Lynch backing up
The general assessment of the industry, added with the other details about the company make it likelihood, that the $100 price point might not be too far-fetched an estimate. In the last 3 months of 2014, the revenues took a jump of 30% to reach $1.31 billion (£848 million), and the opening of new stores across the globe has touched 509, including the new lot of 194 stores opened fairly recently. The view of the consumer in the main markets is also expected to be positive, as Michael Kors got major heads to turn their way during the New York Fashion Week, towards some of its visible creations such as the Fox fur overcoat.
North America, Europe and Asia are now being seen as markets that will have double-digit growth rate in the year, especially with the footwear and women’s ready-to-wear segments. America itself is expected to grow at 6% annually, apart from the menswear category, which should be bringing in 5% of sales volumes for the retailer. The e-commerce market in America will be contributing a decent bit, apart from the plans to launch in Canada (2016), and the Japan and Europe launches in 2017. It wouldn’t be a wild shot to mention that the next two years (2016-2017) are going to be deciding factor, for Michael Kors touching its $100 price mark.
The direct competition
If Michael Kors is looking at direct competition, it will be Coach Inc. (COH, Financial), which is doing better in terms of numbers, at the moment. It is expected to churn in $4.5 billion from revenue in the fiscal year and will be expected to operate in exactly the same markets where Michael Kors is expected to grow. Adding to the fact that they are similar in what they make, Coach is going to be a tough competitor. Moody’s has already lent the lifestyle goods maker a "Baa2" tag for this reason.
The proceeds that will be coming in from the recent offer will be self-consumed for capital expenditures, working capital requirements, repayment of loans and the Hudson Yards developments, but the strong credit rating will work out positively for the company. Coach also has a great cash liquidity base of $1 billion, and a revolving credit access base of $700 million which is turn makes it attractive to put one’s money in. Also, if it manages to hit some of its set targets, one could well witness the $574 million acquisition of Stuart Weitzman sooner or later.
Conclusion
Michel Kors and Coach Inc. are direct competitors with each other in terms of the space they operate in, and the markets where there main profitable consumers lie. Though volumes look favorable for Coach, Michael Kors can be expected to touch targeted price points, if it maintains a strong liquidity base and turns its extensive international footprint into productive sources of revenue. If however, things don’t start rolling around the first half of 2015, the ramifications could adversely affect the Michael Kors market positioning, and will be losing ground to Coach Inc. before they know it.
