Shares of Michael Kors Holdings Limited KORS are riding high on global expansion and Runway 2020 strategic plan. Further, the company has been constantly deploying resources to expand product offerings, opening new stores, building shop-in-shops and upgrading e-commerce platform.
Michael Kors’ acquisition of Jimmy Choo will help diversify portfolio and tap international markets. The buyout is likely to be accretive in the low single digits in fiscal 2020. In order to drive top-line growth, Michael Kors has been focusing on store expansion. In fiscal 2016, the company opened 142 new stores, which included 47 in the Americas and 95 worldwide. In fiscal 2017, it opened 159 net new stores openings, which includes 111 outlets related to the acquisition of the earlier licensed operation in Greater China. Moreover, the company had earlier stated that it will continue with the expansion drive in Asia and also believes it has a $1-billion opportunity in the long term.
Further, Michael Kors stated that its project Runway 2020 strategic plan, which focuses on product innovation, brand engagement and customer experience, has made early progress during the second quarter. As part of the company’s strategy of product innovation it launched Bancroft in the Michael Kors collection line. The product innovation strategy aided the global Women's footwear comparable sales to increase by double digit.
Further, management continues to invest in upgrading the company’s e-commerce platform. In the recently concluded quarter, e-commerce drove comparable sales by 170 basis points.
Stock Performance
The strategic efforts taken by the company has helped the stock to outperform industry in the past six months. While the stock surged 31.3%, the industry gained 13%. We believe there is still momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from its long-term earnings growth rate of 7% and a VGM Score of B. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Stocks such as Guess' GES, G-III Apparel Group GIII and Ralph Lauren Corporation RL which belong to the same industry have witnessed a gain of 24.3%, 24.8% and 24.6% in the past six months, respectively.
Valuation Perspective
A brief glance at some valuation metrics seems to indicate that Michael Kors has enough room to run in bourses.
Michael Kors looks attractive with respect to a forward price-to-earnings (P/E) multiple of 14.0x compared with industry’s 16.7x. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Michael Kors holds the edge here with an EV/EBITDA ratio of 9.8 lower than 16.3 for the industry.
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