Michael Kors Holdings Ltd (KORS) Turnaround Plan on Track: Wells Fargo


It is no secret that online shopping has taken a toll on Michael Kors Holdings Ltd (NYSE:KORS). Once peddling the hottest luxury handbags on the market, the company has been lagging behind competitors like Coach as of late. However, yesterday, Michael Kors may just have caught its big break after releasing a stellar fiscal first-quarter performance for the year. Investors took notice, sending shares jumping almost 22% yesterday in reaction to the print.

For the first fiscal quarter, Michael Kors posted EPS of $0.80, outclassing consensus of $0.62, with total revenue for the quarter bringing in $952.4 million, outperforming consensus of $918.6 million in sales- indicating a roughly 4% beat for the luxury retailer. Additionally, Michael Kors management boosted earnings expectations for 2017, lifting its prior outlook range between $3.57 and $3.67 up to new EPS guidance forecasting between $3.67 and $3.72.

Analyst Ike Boruchow of Wells Fargo credited the upside to “much stronger retail performance (global comps -5% vs. Street -9%), as well as better expense management,” describing the earnings as “a very solid start to their fiscal year.”

The impetus behind management’s new direction came “On the heels on their recent Jimmy Choo acquisition,” with Boruchow shedding light that “the KORS story is beginning to gain some clarity, as management has taken their medicine and begun to take the right steps to improving their brand positioning, in our view.” While calling it a “self-help story,” the analyst notes, “we do appreciate the progress, and with the stock remaining one of the cheapest in our space (shares trade around 10x F2018E P/E with 9% FCF yield) with the broader backdrop favoring brands over retailers, we think there is more to like here than not.”

Boruchow sees the company’s strategy as broken into two categories: a domestic wholesale pullback and US retail pricing initiatives, “both of which could continue to drive renewed investor optimism as the turnaround plan appears to be well on track.”

The analyst rates a Perform rating on KORS stock without offering a price target. (To watch Boruchow’s record, click here)

TipRanks analytics demonstrate KORS as a Hold. Out of 11 analysts polled by TipRanks in the last 3 months, 1 is bullish, 1 bearish, while 9 remain sidelined on Michael Kors stock. With a downside potential of nearly 19%, the stock’s consensus target price stands at $36.90.