Canaccord Not Looking To Snatch Shares Of Michael Kors Ahead Of Challenging Q2

Michael Kors Holdings Ltd KORS has had a solid year from a stock perspective, but Canaccord analysts aren’t sold on the brand heading into its second-quarter report due out on Thursday.

Sidelined And Cautious

Canaccord remains cautious on the accessory and footwear/apparel maker, following sluggishness in its core U.S. business. Michael Kors handbag business, one of the companies most important segments, has seen significant slowing in the United States. Despite the uncertainty, Kors shares have actually increased 25 percent year-to-date.

Analysts noted three major factors contributing to the cautious outlook:

1. Challenging macro/industry headwinds both domestically and internationally.
2. Uncertainty surrounding consumer response to reduced promotions in the wholesale business.
3. A heavy reliance on secondary category growth initiatives, fragrance and men’s, international, to make up from a slowing core business.

Justification For Rating

A recent analyst note from Canaccord highlighting that upcoming brand repositioning will likely cause some significant pain next year before gain.

“Once KORS begins to implement its strategy to reduce promotions in the department store channel, we suspect the consumer response will not be favorable and result in steep comp declines,” wrote analyst Camilo Lyon.

Analysts believe declines in wholesale are likely to continue well into fiscal year 2018. Canaccord left their price target unchanged at $45 and maintains a Hold rating.

At last check, Michael Kors was flat on the day, off Tuesday's opening price of $50.25 by a nickel.