Michael Kors: Investors Looking Down a Long Runway
You may know him as the judge from Project Runway or you may be fortunate enough to afford one of his timeless $2,000 dresses.
And if you are not a fashionista or a TV fan chances are after the Michael Kors IPOthis morning you are now familiar with Michael Kors.
After pricing at $20 — higher than the expected $17 to $19 range — the stock debuted with a 25 percent pop. This was certainly no Prada IPO. Investors are betting that KORS has a long runway ahead. The story certainly ticks all the boxes, and it should with such a lofty valuation.
With under 200 stores in North America, the company projects a potential rollout to 400.
Internationally, the company has 37 stores in Japan and Europe and is looking for a potential of 100 in each market. If you don't live near one of the stores, don't worry as you can find the product in over 2,000 wholesale points (think Harrod's, Saks , Bergdorf) Store expansion; check.
Of course no over-subscribed retail IPO would be complete without the same-store sales part of the equation. And there is not shortage of that here either.
Last year comps increased 48 percent. For the most recent October-November period, comps increased more than 30 percent. And that performance is not a one-off with increases in each quarter during the past five years. Yes, even during that nasty recession when the luxury market declined 8 percent, organic sales growth: check.
The industry leading sales growth here is not just a story about the unattainable. In fact Kors launched his accessible luxury category years back. You do not have to be part of the 1 percent to model his fashions. Rather a great dress can be had for $150 at Macy's , Nordstrom and Bloomingdale's. Timing for the accessible line could not have been better.
The brand is not just all about apparel either. High-margin accessories are a focus and now represent more than 60 percent of sales.
Now back to valuation. Some are wondering if a 40-times plus multiple is sustainable, especially as the stock trades at a huge premium to its obvious peer group (Coach , Ralph Lauren ). While Lululemon is not a pure luxury play, the stock may have may more in common with KORS than the traditional peer group. KORS and LULU have a similar store growth trajectory and double-digit comps quarter after quarter.
LULU currently trades in the mid-30 multiple range even after it was recently knocked off its pedestal. While KORS ticks all the high-multiple boxes, similar to the LULU story, the stock may be priced for perfection.
Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years.
Disclosures: Widlitz owns shares of Lululemon Athletica.
