Analyst: Michael Kors Holdings Ltd.'s Outlets May Hurt Brand

Michael Kors Holdings Ltd.

reliance on outlet stores to boost sales could dilute the value of its luxury brand, an analyst said Tuesday. Kors shares are off 14 percent in the year to date and were little changed recently at $64.50 -- not far off its 52-week low of $63.31. Oppenheimer's Anna Andreeva maintained a Neutral rating and trimmed $0.03 cents from her fiscal fourth-quarter earnings estimate to $0.91 cents a share. Andreeva said Coach Inc.'s

heavy reliance on outlets has "weakened its brand equity," and Kors now gets about a quarter of its profits from the segment. "We think over-distribution concerns could be playing out," for Kors' outlet strategy, Andreeva said. Kors' outlets represent a third of its 288 North America retail stores. The company expects to eventually operate 400 North American stores, including 125 outlets. But retailers in general are finding outlets an increasingly less significant growth driver according to Andreeva, who cited industry figures suggesting that same-store sales at outlets grew just 2 percent annually during the past three years. Andreeva cut her fourth-quarter earnings forecast for Kors, citing shipping delays caused when Kors's Groveport, Ohio, fulfillment center collapsed under heavy snow March 1. As of Tuesday, Kors continued to have a notice on its Web site warning customers of shipping delays. Andreeva also cited foreign exchange pressure for the lower forecast. Wall Street on average expects $0.92 cents a share for the period ending March 31.