Michael Kors: Dressed for Success

06/11/2014 7:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Founded in 1981, this company—a new featured recommendation—has evolved from an American luxury sportswear wholesaler into a global accessories, footwear, and apparel company with operations in 85 countries, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Michael Kors (KORS) sells accessories—including handbags and small leather goods—that account for 80% of total company sales.

The Michael Kors name reflects the ultimate in luxury, with handbags and small leather goods retailing from $500 to $6,000, footwear from $300 to $1,200, and women's apparel from $400 to $4,000.

Kors is successfully taking market share from competitors in a growing global accessories market. Kors makes fashionable products appealing to a wide range of shoppers and uses a multi-tiered pricing strategy with items to fit every budget.

With 82% of 2013 total revenue coming from the US, Kors has extensive possibilities for international expansion. In addition, e-commerce offers huge untapped growth opportunities.

Kors reported remarkable results for the 12 months ended March 29. Sales surged 52% and EPS soared 63%. Both wholesale operations and retail operations contributed rapid growth.

Results were also driven by the opening of 100 company-owned and 50 licensed retail stores, and the conversion of 500 wholesale customers into highly profitable store-within-a-store centers.

Kors is benefiting from strong consumer demand in the US for fashion handbags, small leather goods, and watches. Kors is expanding its product offerings, including men's leather accessories, and, for women, a new fragrance and beauty collection.

The company also has an increasing brand recognition in Europe and Japan. Sales and EPS will likely climb 25% during the 12 months ending March 31, 2015.

KORS shares are not cheap at 29.2 times current EPS, but EPS are forecast to rise 26% per year during the next five years. The balance sheet is very strong with no debt and lots of cash available to fund growth initiatives.

I expect KORS shares to advance to my minimum sell price target of $122.56 within one year.

Subscribe to Cabot Benjamin Graham Value Investor here…

More from MoneyShow.com:

Prudent Picks in Retail

Contrarian Consumer Ideas

G-III: Dressed for Success

Related Articles on STOCKS