When it comes to apparel, we are spoilt for choice. Yet, we buy only those that best suit our personality, without compromising on fashion, fabric, color, design or size. The same principle applies when picking a stock as we always prefer a well-tailored portfolio that promises higher returns.
So, why are investors merely window-shopping at Michael Kors Holdings Ltd. KORS? Is the stock no longer an investor favorite? Let’s find out.
Where's the Stock Price Heading?
Shares of Michael Kors touched a 52-week low of $44.83 last Friday, before the closing trade of $44.91. Year to date, shares of this retailer of branded apparel and accessories have nosedived roughly 40%. Moreover, the stock has plunged about 26% following the company’s fourth-quarter fiscal 2015 results. It has been nearly a year since this Zacks Rank #4 (Sell) stock hit a 52-week high. It had last reached the pinnacle on Jul 7, 2014.
Despite witnessing year-over-year growth of 17.8% and 15.4% in the top and bottom lines, respectively, the company’s dismal comparable-store sales (comps) performance and subdued outlook for fiscal 2016 turned investors away from the stock.
Comps for the fourth quarter fell 5.8% as against a 26.2% increase registered in the prior-year quarter, and were nowhere near management’s projection of a mid single-digit rise. A slowdown in traffic in North America, soft performance of the company’s watch business, forex headwinds and delays due to disruption at the West Coast ports, were chief reasons for the decline.
Management projects flat comps for fiscal 2016, as against a 10.3% rise registered in fiscal 2015. Moreover, the company hinted that comps in the first quarter would decline in low-double digits.
Which Way Are Estimates Treading?
Apart from discouraging comps projection, Michael Kors provided a cautious first-quarter and fiscal 2016 earnings per share outlook, and warned that currency headwinds may hurt the bottom line by 7 cents and 20 cents a share, respectively. Management now envisions earnings in the band of 74–78 cents for the first quarter and between $4.40 and $4.50 per share for fiscal 2016.
Consequently, analysts realigned their estimates, thus triggering a downtrend in the Zacks Consensus Estimate. Over the past 60 days, the Zacks Consensus Estimate of $4.38 and $4.66 per share for fiscal 2016 and fiscal 2017 has declined 7.2% and 9.3%, respectively.
Of course, this does not imply that management at Michael Kors is sitting idle. We can’t ignore the company’s strategic initiatives, such as enhancement of its eCommerce platform, store expansion drive and shop-in-shop endeavor. But, when it comes to the question of a “Well-Tailored Portfolio”, investors may look beyond Michael Kors.
Here, we have highlighted 3 stocks in the Textile-Apparel space for investors, on the basis of their Zacks Rank, sound Zacks Consensus Estimate revision and sturdy fundamentals:
G-III Apparel Group, Ltd. GIII, manufacturer and marketer of women’s and men’s apparel, is a solid bet. The stock sports a Zacks Rank #1 (Strong Buy) and has surged roughly 44.2% year to date. Based in New York, G-III Apparel delivered an average positive earnings surprise of 53.8% over the trailing four quarters, and has a long-term earnings growth rate of 18.5%.
The company is expected to witness earnings growth of 21.7% in fiscal 2016 and 18% in fiscal 2017. Further, the Zacks Consensus Estimate has been showing an uptrend over the past 30 days.
We also suggest investing in Hanesbrands Inc. HBI, designer, manufacturer and seller of a range of basic apparels. This Zacks Rank #2 (Buy) stock has amassed a year-to-date return of about 25% and has a long-term earnings growth rate of 13.4%. The Winston-Salem, NC-based company has delivered an average positive earnings beat of 4% over the trailing four quarters.
It is expected to witness earnings growth of 16.5% in 2015 and 13.3% in 2016. The Zacks Consensus Estimate too has moved up over the past 90 days.
Another Zacks Rank #2 stock that investors may look forward to is Columbia Sportswear Company COLM. This designer, marketer, and distributor of outdoor and active lifestyle apparel, footwear and accessories, has advanced approximately 43% so far this year. An average positive earnings surprise of 17% over the trailing four quarters and a long-term earnings growth rate of 11.5% make this Portland, OR player quite an attractive investment option.
The company is expected to witness earnings growth of 8.6% in 2015 and 13.8% in 2016. The Zacks Consensus Estimate too has trended upward over the past 60 days.
Bottom Line
Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.
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