The market value of Michael Kors Holdings Ltd. just keeps climbing, hitting $18.25 billion on Tuesday and valuing designer Michael Kors’ 2 percent stake at $365 million.
The company’s shares soared 17.3 percent Tuesday to close at $89.91 in trading on the New York Stock Exchange after Kors reported a 76.6 percent leap in net income for the third quarter ended Dec. 28 on a 59 percent rise in revenues. Shares rose as high as $93.18 in intraday trading, which represented a new 52-week high. About 23 million shares changed hands, compared with an average three-month trading volume of 4.5 million shares.
The accessories and fashion firm reported net income for the third quarter of $229.6 million, or $1.11 a diluted share, up from $130 million, or 64 cents, a year ago. Total revenues were $1.01 billion, compared with $636.8 million, which included a 59 percent gain in net sales to $964.8 million from $606.9 million. North American comparable-store sales rose 24 percent, its core market, while comps rose 73 percent for its European stores. The balance of revenues was from licensing income.
Analysts were expecting on average 86 cents in earnings per share for the quarter on a revenue estimate of $859.9 million.
For the nine months, net income rose 68.8 percent to $500.4 million, or $2.44 a diluted share, on a total revenue gain of 51 percent to $2.39 billion.
Analysts were cautious about the results, though.
Paul Lejuez of Wells Fargo said that while Kors showed strength in “every line item, every region and every segment,” he also said “we believe impressively high sales productivity levels create extremely difficult comparisons and will lead to slowing comps at some point.”
Randal J. Konik at Jefferies downgraded the stock to “hold,” noting that the growth “has been too fast.” He noted that as Kors continues to take market share from Coach Inc., “we believe the brand is reaching a saturation point and see diminishing returns as the product becomes increasingly ubiquitous.” He also noted that Coach’s history can serve as a guide for “potential downfall associated with market saturation,” and went so far as to even suggest that the “holiday quarter may be the peak.”
John D. Idol, chairman and chief executive officer, didn’t have the same reservations, and instead shared with Wall Street analysts during a conference call where he thought were the pockets of growth for the brand.
“Michael’s fashion messaging with our customers [was] strong, and well-executed throughout the holidays. We communicated with our customer through e-mail, catalogue, print, outdoor and social media, which expectedly conveyed the glamour and luxury of our holiday offering, capturing the customer’s attention and generating strong demand globally,” Idol said.
He also told analysts during the question-and-answer period, “And we think that continuing to build our platform socially is one of our priorities because it gives us one of the greatest global reaches. So, I’d say that’s probably our number-one priority.”
Idol said the company has acquired more than 10 million Facebook fans, and is in the 1.5 million range for Twitter and Instagram.
The company’s new North American Web site is set to launch for fall. “We are seeing high-double-digit increases in our worldwide search volume and in visitors to our existing Web site. By bringing e-commerce in-house, we will be able to better focus on communications, marketing and sales strategies to capitalize on the online growth opportunity,” the ceo said.
Idol noted that the third quarter was the first time the company posted revenue in excess of $1 billion for any of its quarters. He also told analysts that the company remains focused on executing on its six-pronged growth strategy that includes more retail doors and continued conversion of department store doors into shops-in-shop.
Kors opened 20 stores in North America, 19 across Europe, four in Japan and seven in the Far East through regional licenses during the quarter. For fiscal 2014, Idol said the company is on track to open 57 North American retail stores and 36 stores in Europe. The company just opened a flagship in Shanghai, at Kerry Centre on Nanjing Road, and has opened two stores in Brazil, in São Paulo and Curitiba, in the quarter. There are seven stores in Latin America, with an additional site in Brazil, one in Venezuela and three in the Caribbean.
The ceo said over the next few years, Kors believes that it will achieve revenue in excess of $1 billion in the European market, which had sales of $140 million for the quarter just ended.
Licensing income was driven by strength in its luxury watch and eyewear businesses. Idol also noted the growing momentum for its jewelry category and that the company will roll out additional watch and jewelry shops in its wholesale channel. There were 120 watch and jewelry shops at the end of the quarter, and the company said it can have 500 shops-in-shop worldwide.