KORS Stock: This Should Keep Michael Kors Shareholders Up At Night

KORS StockThis Is Bad News for KORS Stock: Analysts

Shares of Michael Kors Holdings Ltd (NYSE:KORS) stock surged after the company reported better-than-expected earnings. But some analysts noticed holes in the company management’s commentary. Holders of Michael Kors stock should take notice.

Michael Kors, a clothing retailer, specializes in women’s accessories and clothing. Earnings for the company’s third quarter came in at $294.6 million ($1.59 per share), versus $303.7 million ($1.48 per share) a year ago. Revenue for the quarter totaled $1.4 billion, compared to $1.3 billion a year earlier. However, the crucial same-store sales number was down almost one percent. (Source: “Michael Kors Holdings Limited Announced Third Quarter Fiscal 2016 Results,” Michael Kors Investor Relations, February 2, 2016.)

The fact that analysts expected these numbers to be much lower—by -4.4%—explains the sudden explosion of optimism for KORS stock. For the current quarter, the company expects revenue between $1.13 and $1.15 billion and earnings per share (EPS) of $0.93–$0.97.

Analysts specializing in the retail industry have contained their enthusiasm for Michael Kors stock. Despite the undeniable bullish sentiment, most analysts have kept a “Hold” rating on KORS stock.

One notable analyst, Ronnie Moas from Standpoint Research, downgraded Michael Kors from a “Buy” to a “Hold” rating. The only “Buys” are coming from four out of 11 analysts, with all of four reiterating their previous ratings. (Source: “Analysts covering Michael Kors,” Tipranks, last accessed February 4, 2016.)

Amy Noblin from William Blair research reiterated a “Market Perform” rating on Michael Kors, stating the following: “Despite the beat, management left its fiscal full-year EPS guidance unchanged, with sales now expected to come in on the top end of the prior range, offset by greater foreign exchange and operating cost pressures.” (Source: “William Blair Reiterates a Market Perform Rating on Michael Kors,” Analyst Ratings, February 2, 2016.)

Yet, analysts at Mizuho were harsher. Mizuho deemed KORS stock a “Neutral,” even after the surprising quarterly performance was reported. Mizuho’s rating implies its analysts fear a decline more than they expect an increase. Mizuho has set a target price of $45.00, which suggests a downside of about five percent based on the current value. (Source: “Michael Kors Holdings Ltd 4.5% Potential Decrease Now Implied by Mizuho,” Directorstalk, February 3, 2016.)

Analysts are worried about the company’s expansion into men’s accessories as a new business segment. This carries new risks. Michael Kors can apply what lessons its learned from focusing on women’s accessories, but the textile and apparel sector is firing more employees than it is cylinders. Diving further into a struggling sector doesn’t seem wise. (Source: “Why is Michael Kors (KORS) Stock Surging Today?” Zacks, February 2, 2016.)

Another problem is that Michael Kors, like other retail stocks, is swimming upstream against the strengthening U.S. dollar. The U.S. currency is trading at record-highs against key currencies. This discourages tourists from buying luxury items, especially during crucial retail periods like the Christmas and holiday season. The relative values of the Canadian dollar, euro, yen, and yuan discourage visitors from coming to the U.S. in the first place, let alone buying luxury goods.