UPDATE: Credit Suisse Downgrades Michael Kors As Promotional Activity Intensifies

In a report published Tuesday, Credit Suisse analyst Christian Buss downgraded the rating on Michael Kors Holdings Ltd KORS from Outperform to Neutral, and lowered the price target from $103.00 to $79.00. In the report, Credit Suisse noted, “We are downgrading shares of Michael Kors Holdings to Neutral from Outperform in light of a dramatic ramp in promotional activity seen across the U.S. retail landscape for Michael Kors handbags (80% of sales). Our Outperform thesis has been predicated on the view that the company has maintained appropriate control of distribution which will limit margin compression as the brand matures. As a result, our view has been that even with U.S. comps slowing to the high-single digit level, 15%-plus earnings growth could be sustained. This no longer appears to be the case, as a combination of rising inventories and softening traffic has led to a dramatic step up in promotional activity across Michael Kors stores, eCommerce sites, and premium wholesale distribution partners. We lower comp and margin estimates accordingly. We lower our target price to $79 from $103 and downgrade shares from Outperform to Neutral.” Michael Kors closed on Monday at $73.01.