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Cramer measures Michael Kors against luxe Vince

Tuesday, 3 Dec 2013 | 6:27 PM ET
Clash on the catwalk: Kors vs. Vince
Tuesday, 3 Dec 2013 | 6:25 PM ET
Mad Money host Jim Cramer explains why although Vince Holdings may be tradable, Michael Kors is a far better investment.

(Click for video linked to a searchable transcript of this Mad Money segment)

Chicken or fish? Solids or stripes? Colgate or Crest? Sometimes you just have to choose.

If you're an investor looking to establish a new position in a luxury retailer you may find yourself facing the same kind of conundrum – Michael or Vince?

That is, if you must choose between the stocks of Michael Kors and Vince Holdings, which should you go with?

"I've gotta tell you, when you compare these two companies rigorously, it's not much of a contest," said Jim Cramer.

Michael wins. Here's why.

Nerida McMurray Photography | Digital Vision | Getty Images

"Michael Kors is much more recognizable, with 75% brand awareness, versus just 20% brand awareness for Vince," Cramer said. "That suggests Vince will needs to invest heavily in marketing to get the word out, and that can be expensive."

Also Cramer thinks the business model for Vince isn't terribly attractive. "60% of their business comes from just 4 department stores, Saks, Neiman Marcus, Bloomingdales and Nordstrom. They don't have much leverage over distributors."

By contrast, Michael Kors operates 352 retail stores around the world, and they have another 155 stores run by licensees. "It's better to have your own stores, selling your own merchandise directly to the consumer because the retail price is so much more profitable."

Also Cramer likes growth potential at Kors a lot more.

"Management thinks they can double their base of 352 company-owned stores to 700 locations over the next few years. Vince plans to increase their store count to 40 locations by 2016, but that's off a very low base of 21 full-price stores and six outlets right now, and at the moment we don't even know for sure if the brand has enough traction to support that kind of expansion."

Also Cramer thinks the overseas opportunity is far greater for Kors. "Vince is pretty much all domestic at this point, whereas Michael Kors is starting to grow by leaps and bounds overseas. Two quarters ago, KORS said that they saw a $500 million opportunity in Europe, but when KORS reported its latest quarter, they revised that European opportunity figure up to $1 billion."

Cramer also likes the gross margins better at Michael Kors.

"Michael Kors sports a magnificent 60.8% gross margin, up 150 basis points in the latest quarter, while Vince has a much lower 45% gross margin. It's just no comparison."

And looking at the stocks, Cramer believes Michael Kors is the better value.

"Vince sells for 37 times next year's earnings estimates with a 40% long-term growth rate. Kors sells for 27 times next year's earnings with 25% growth. So, in other words, Vince trades at slightly less than one times its growth rate, while KORS trades at slightly more than one times growth. KORS is trading at a slight premium to Vince on a growth basis, but I think it might deserve a big premium. "

All told, Cramer believes Michael Kors is the better bet over the long-term.

However, if you can't get Vince off your mind, Cramer does see a reason to give Vince at least some attention.

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"Right at the end of the year, the post IPO quiet period ends, and that means all of the bankers who underwrote the deal will be able to initiate coverage on the stock. Typically, when this happens you get a wave of positive research, and I wouldn't be at all surprised if Vince rallies nicely in response, but that won't happen until the beginning of January."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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