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How Michael Kors Steps Up Rebound with Jimmy Choo

Image via cchana/Flickr CC

Back in October we suggested investors keep an open mind with respect to retailers, which had been battered this year, and early indications from the sector suggest the holiday shopping season is off to a strong start, notes Mike Cintolo, growth stock specialist and editor of Cabot Top Ten Trader.

One can look at rising wages, upbeat consumer confidence and low unemployment as catalysts, but the clearest measure of investor enthusiasm is a 10% rally in retail stocks over the past three weeks. Michael Kors (KORS) has been one of our preferred stocks to ride the wave.

We recommended shares in October on mounting evidence that the specialty retailer’s return to exclusivity was paying off. Its turnaround plan, called Runway 2020, includes rationalizing its store fleet, cutting promotional pricing and enhancing product offerings, most notably through the acquisition of Jimmy Choo (shoes, bags and accessories).

The Q2 results on November 6 show the game plan is working. Revenue growth of 5.5% was slightly better than expected, but EPS of $1.33 crushed expectations by $0.50. Retail net sales growth of 8% was helped by 56 net new store openings and e-commerce growth in Europe and Asia.

The company’s growth outlook is much brighter too, with revenue growth in the 3% to 6% range now expected in fiscal 2018 and 2019. Earnings are expected to be flat next year but our guess is that will prove very conservative.

KORS bottomed in 2017 as shares spent much of the early part of the year trading sideways in a three-point range. The breakout came in early August when the stock jumped from $37 to $46 after reporting fiscal Q1 results.

Modest demand fueled a move to $50 in October, then shares broke out to a fresh high of $55 after Q2 results were released. Encouragingly, there’s been zero pullback since then, with the stock marching higher. If you’re game, look for modest weakness to grab shares.

Mike Cintolo is growth specialist and editor of Cabot Top Ten Trader.

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