Michael Kors stock won't set a retail trend

Michael Kors low-balls guidance

Michael Kors Holdings has given investors in the retail sector their first glimmer of hope in some time. Unfortunately, there may be more dark days to come before another company can put on such a show.

Shares of the fashion house surged 18 percent Tuesday to a record high after it handily beat expectations for the December quarter. The news came as retail stocks had been hit especially hard in the recent selloff amid concerns about a weak holiday shopping season. Kors shares were down 9 percent from their December high going into Tuesday's earnings announcement.

There are reasons to believe Kors' advantages set it apart from the vast majority of retailers. First, the company has carefully managed analyst expectations since its initial public offering in late 2011. Including Tuesday, Kors has exceeded consensus estimates for earnings per share in all of the nine quarters it has reported as a public company, according to FactSet.

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Second, Kors is younger than many competitors and has fewer stores, so it can probably keep drawing customers even if its rivals discount aggressively. Kors had 264 North American retail stores at the end of September, including outlets. By comparison, rival Coach had 350 retails stores and 198 wholesale stores at the same point in time.

Third, Kors has only recently begun its expansion in overseas markets, where large conglomerates like Gucci parent Kering Group and LVMH Moet Hennesey Louis Vuitton have sometimes struggled to keep customers interested in their ultra-expensive luxury products. Kors hinted on Tuesday that share gains from such companies were a tailwind last quarter.

Michael Kors store in Milan.
Getty Images

Even Kors eventually will need to slow. The company has generated comparable-store sales growth of about 40 percent for the past three years and expects them to rise 25 percent in the year through March. While companies like Lululemon Athletica have shown robust comparable-sales growth in the past, it has proven difficult to maintain for more than a couple of years.

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Indeed, it's hard to imagine Kors selling much more merchandise at any given store. The company's U.S. stores will probably sell about $2,000 in merchandise per square foot in the year ending this March, estimates Paul Lejuez of Wells Fargo. Coach, by comparison, reached a peak of $1,300 per square foot in 2007, he said.

Kors trades at a heady 27-times consensus forward earnings, though that multiple could drop slightly as analysts revise forecasts higher after Tuesday's results.

Given the lack of other seemingly bulletproof growth stories in retail, investors may be comfortable holding on to the stock at that level. But with Kors stores already selling so much merchandise per store, sales growth may slow sooner rather than later.

—By CNBC's John Jannarone. Follow him on Twitter @jannarone.