Michael Kors Shares Lower Following Downgrade To Neutral

In a report published Monday, Mizuho Securities analysts downgraded the rating on Michael Kors Holdings Ltd KORS from Buy to Neutral, while reducing the price target from $80 to $70. The rating revision follows the Spring 2015 US Handbag and Accessory Survey.

Mizuho Securities' proprietary online survey of about 342 US women conducted from April 8 to April 20 indicated:

• Seasonal slowdown in purchases during the past three months, as compared to the Holiday season sales
• More attractive discounts
• Increased purchase interest in clothing and footwear
• Savings from lower gas prices to be spent on the above categories

There was a decline of shoppers who purchased or received a Kors product from 48 percent in the Holiday quarter to the current 28 percent. Although this can be attributed to seasonality, the analysts view this "ominously for future same store sales trajectory." Comps remain in the 20 percent range.

"Moreover, although respondents ranked KORS highly in brand equity, product quality, fashion newness and store/online experience, a rising percent of shoppers cited brand prevalence or lacking “fashion differentiation” as reasons for buying less in the next 12 months. The potential comp deceleration and investments in DTC and Int’l further clouds EBIT margin visibility from peakish levels which leads us to walk down our estimates and rating," the analysts wrote.

The survey also indicated that about 26 percent of participants purchased a Kate Spade & Co KATE product during the past three months, despite lower promotions; while there was a rise in repurchase intent to 64 percent, from 60 percent in January, the best within the peer group. Mizuho Securities has a Buy rating on the company, and raised the price target from $38 to $40.

The survey indicated a decline to 14 percent in Coach Inc COH purchases over the past three months, from about 36 percent in the January survey. In terms of brand equity, product quality, perception of fashion newness and desirability by family & friends, COH received lower rankings than the prior survey. The analysts have a Neutral rating on the company, and raised the price target from $37 to $42.