Michael Kors Holdings Limited BUY

KORS : NYSE : US$90.31
BUY
Target: US$119.00

COMPANY DESCRIPTION:
Michael Kors Holdings Limited designs, markets, and
distributes branded women s apparel and accessories,
and men s apparel. The company sells its products
primarily under the names of Michael Kors, MICHAEL
KORS, MICHAEL MICHAEL KORS, and KORS MICHAEL
KORS. It operates in three segments: Retail, Wholesale,
and Licensing. The company has over 230 stores across
North America, Europe, and Japan.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Footwear and Apparel
ALL (SHARE) GAIN, NO (MARGIN)
PAIN; REITERATE BUY, NEW $119 PT
Investment recommendation
Once again, KORS trounced our and Street expectations with impressive
execution across the entirety of its business, posting comps/EPS of
27.8%/$1.11 vs. our 18%/84c estimate (consensus was 20%/86c).
Surprisingly, the significant comp upside did not come at the expense of
gross margin as Q3 promotional levels were similar year/year. Clearly,
KORS is taking share from its direct competitor in COH, but more
importantly it is also taking share from luxury brands (e.g. Gucci and
LV) as the accessibility of its price points is creating a swell of demand
for the brand globally. We expect continued share gain benefits to
materialize as 1) brand awareness grows in Europe/Japan; 2) categories
gain further traction (e.g. accessories, men’s/women’s, footwear, and
fragrance); and 3) 70% larger retail store openings plus incremental
shop in shops in NA persist through 2015. Given 3 new DC openings
planned over the next 24 months, we believe KORS’ global growth
opportunity is robust and view it as a core growth holding; thus we
reiterate our BUY.
Investment highlights
The astounding strength in Europe (73% comps) is having an
increasingly positive impact on gross margins; meanwhile KORS has
yet to see an increase in markdown allowances in wholesale
suggesting further gross margin expansion opportunities in 2015,
particularly as both retail and product mix trend favorably (we are
estimating a conservative 30bp improvement).
Valuation
Our $119 target is a blend of 30x 2015E EPS/17x EBITDA/DCF.

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