Analysts have raised questions regarding the growth trajectory of Michael Kors Holdings Ltd., but investors don’t seem to share those concerns.
Investors are shrugging off Tuesday’s sell-off of Kors’ stock, sending shares back up for the second consecutive day. The stock rose 0.9 percent to close Thursday’s trading session at $81.86. Shares of Kors rose even higher in early-morning intraday trading, hitting as high as $83.92, or up nearly 3.5 percent, from Wednesday’s close of $81.10. Wednesday’s close was up 2.1 percent from the sell-off Tuesday, which saw the stock fall to $79.44. More than 6.4 million shares changed hands Thursday, compared with a three-month average trading volume of 3.1 million shares.
Tuesday’s sell-off was triggered by downgrades of Kors stock. Maxim analyst Rick Snyder changed his rating to “hold” from “buy.” The rating change was based on the belief that domestic sales have weakened to a greater degree than anticipated, Snyder said. He also concluded that there was increased markdown activity, which “is likely to pressure gross margin.”
Citigroup’s Oliver Chen on the same day said based on national channel checks at 62 stores across 28 states, Kors remains an outperformer, although there are concerns regarding lack of newness where handbags are concerned. He trimmed his price target for Kors’ stock to $98 from $107. So far, he has made no change in his rating of the stock, although he added that there might be a reconsideration depending on first-quarter results, which are scheduled to be reported in early August.
Amy Knoblin at William Blair downgraded the stock to “market perform” from “outperform” on the basis of growing concern that the long-term momentum name will now trade more on sentiment than fundamentals, specifically on fear that the brand will peak in North America.
Sterne Agee’s Ike Boruchow on Tuesday maintained his “neutral” rating of Kors shares, noting that it might be better to remain on the sidelines even though sales growth is likely to remain strong near-term because the possibility of deeper markdowns could be a red flag for a tipping point in profitability.
Not all analysts were down on Kors. Faye Landes at Cowen & Co. said the data connected to the latest handbag wars between Kors and Coach Inc. suggests “ongoing robust preferences for Kors.” Landes also said Kors is becoming a more complex, global company, particularly with the hiring of Stephane Lafay as president of Asia and Mark Brashear as president of men’s, noting that anecdotes around the U.S. business “will not tell the whole story.” She said the recent weakness in Kors provides an excellent entry point for investors.
Camilo Lyon at Canaccord Genuity Inc. also said the “unfounded concerns over recent promotional activity” creates a buying opportunity for shares of Kors.
And Simeon Siegel at Nomura noted that while there are fears around Kors’ top- and bottom-line growth, the majority of investors he’s spoken with “are not expecting a miss” regarding peaking sales or margins.
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