13% Downside Seen For Michael Kors As Market Saturation Persists

Accordingly, the firm initiated coverage of Michael Kors at Underperform with a $37 price target.

Analyst Jamie Merriman noted that shares of Michael Kors had a meteoric rise between 2008 and 2015 as the company emerged as the number one handbag brand in the U.S. Further, as the brand gained traction, the analyst noted that distribution was extended to more and more wholesale partners, with the total wholesale doors expanding from about 1,100 to about 4,000 in 2015.

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With sales growth beginning to slow down dramatically in 2016 and the North American sales declining in 2017, Bernstein said the company began to reassess its strategy. However, the firm believes the current strategy to reduce promotions by excluding the brand from friends and family deals at wholesale and closing 100–125 retail doors is not aggressive enough.

"We think a sharper pull back in North American wholesale is needed to reposition the brand and expect sales growth to fall short of guidance and consensus expectations," the firm said.

Meanwhile, the firm is of the view that management's guidance for revenue growth in 2019 is too ambitious and the actual results will disappoint. Therefore, the firm said it is about 2 percent below the consensus estimates for fiscal year 2018 and about 7 percent below the consensus in fiscal year 2019.