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Goldman Sachs Cuts Michael Kors Price Target In Half

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In a report published Thursday, Goldman Sachs analyst Lindsay Drucker Mann downgraded the rating on Michael Kors Holdings Ltd (NYSE: KORS) from Buy to Neutral, while lowering the price target from $93 to $50. The company was also removed from Goldman Sachs' Americas Buy List following the disappointing 4Q15 results and 1Q16 guidance announced by the company.

"4Q15 (Mar) results and 1Q16 guidance reveal far weaker trends in the US than we had anticipated. The speed of deterioration since mid-February is an outlier vs. other retailers, and has shaken our confidence that KORS can comp positively in the US despite a favorable competitive backdrop and healthy handbag industry trends," Drucker Mann explained.

The market appears to expect sharp earnings erosion, which the analyst believes is appropriate, given the lack of earnings visibility. The analyst expected the company to post modestly positive U.S. comp sales growth with fairly stable margins. However, the comp miss in 4Q15, although driven by external factors, suggests that there is underlying brand weakness, which is unlikely to have a quick solution.

Drucker Mann also believes that "it is difficult at this stage to pinpoint a bottom, particularly since management is not materially modifying its business strategy in response." The EPS estimates for FY16, FY17 and FY18 have been lowered to reflect limited growth in the domestic market, going forward.

"We continue to view handbag category dynamics as compelling due to (1) consolidated competition, (2) lower mark-down risk, (3) a compelling price and margin structure supported by luxury brands, and (4) underlying category growth of low-to-mid single digits," the Goldman Sachs report added.

Shares of Michael Kors dropped more than 24 percent Wednesday to close at $45.93.

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Posted-In: Goldman Sachs Lindsay Drucker MannAnalyst Color Downgrades Price Target Analyst Ratings


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