Michael Kors: in the bag Premium

Michael Kors, the fashion house from the American designer of the same name, has another stellar quarter in the bag. Revenue grew nearly 40 per cent, gross margin rose, and net income increased 50 per cent.

The shares jumped, of course. But this kind of quarterly performance has become customary for Michael Kors and its investors, whose products and shares have shown unrelenting momentum since the company went public nearly two years ago.

If you want further testament to just how hot the brand is, look to Europe. US fashion brands can have a tough time on the home turf of the world’s most renowned luxury names. But European sales at Michael Kors doubled, to $114m in the three months to September. Notably, the company is targeting revenues of more than $1bn there in the next few years, as it continues to open new stores.

The performance in North America – accounting for more than four-fifths of revenue – was not so shabby either. Comparable store sales were up 21 per cent. That is on top of a 45 per cent increase in the same period a year ago, and comes in spite of the lacklustre economic recovery that has kept US consumers cautious on discretionary buying this year. Management also said store traffic was growing at a double-digit rate.

Shareholders that bought Kors’ December 2011 initial public offering have reaped a return of nearly 300 per cent. At $79, the stock trades at 26 times forward earnings – not cheap. Eventually, growth must slow. But during the next few years at least, earnings per share is expected to increase by about 30 per cent on average annually. So the multiple can be justified for now.

But that is only true so long as the products do not go out of fashion – among the biggest and more unpredictable risks for luxury brands – and as long as it does not trip up on its torrid growth.

Email the Lex team in confidence at lex@ft.com

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