Morgan Stanley Says Europe & Asia Will Anchor Michael Kors Growth

Kimberly Greenberger of Morgan Stanley met with Michael Kors Holdings Ltd KORS CEO John Idol and other key executives and left the meeting confident in the company's future prospects, particularly in Europe with Asian sales contributing nicely.

North American retail sales represented 35 percent of the company's second quarter revenue, down from 40 percent in the same quarter a year ago. On the other hand, European sales represented 21 percent of the revenue in the quarter, an increase from 15 percent a year ago.

Michael Kors' management believes it can generate $1.5 billion in sales in Europe. Greenberger speculates the figure will ultimately exceed $2 billion. The analyst notes that the company's $478 million revenue base in Europe in fiscal 2014 was nearly identical to the company's fiscal 210 North American sales of $473 million.

“In the four year since, Michael Kors has scaled its North American sales base to $2.7 billion in fiscal 2014,” Greenberger wrote. “We think this supports a European sales target well above management's $1.5 billion goal.”

The analyst also believes revenue from Japan will reach $300 million over time and the South Korea license buyback could add $100 million.

Shares are rated “Morgan Stanley Best Idea” (Overweight) with a $105 price target.