Michael Kors Has Upside…In 2017, BlueFin Says

Luxury apparel, footwear and accessories retailer, Michael Kors Holdings Ltd KORS has made a substantial rebound in 2016 Q1 off the back of a rough previous two years.

With the stock up over 40 percent for the first quarter, it's no surprise analysts are taking note. However, the upside may not be as imminent as others believe, BlueFin Research Partners implied in a recent stock update.

Fourth Quarter Likely To Be In Line, Upside In 2017

BlueFin analyst Rebecca Duval explained the firm's checks into Michael Kors over the past year, highlighting investors' trends of being "sensitive to near-term business trends."

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"Since 2H:15 we've been talking about increasingly positive momentum in the handbag space which we think will continue to play out in 2016," Duval said, setting the context for the report. "With Michael Kors (KORS, no rating, $56.87) up some 60 percent since mid-January, the stock has quickly gone from a value play to a momentum stock; which likely means that investors will be much more sensitive to the near-term business trends. We think the biggest headwind to the KORS story is the disappointing North American department store traffic that isn't showing any signs of improvement."

Duval elaborated that despite broad sector lackluster, Michael Kors does possess keys to forward success, particularly, its innovation in handbags.

"It has been several years since we've seen this much newness and excitement in the luxury handbag space," Duval said.

"According to our sources, the product they're seeing in the pipeline for this year is exciting, eye-catching and going to appeal to women who haven't seen much newness in the handbag space for quite some time," Duval explained. "The new crop of handbags are also coming out in varying trends, color and leathers; so not only are we seeing much more variation in the assortment, but bigger bags tend to have higher Average Unit Retail (AUR) which only helps revenue."

Despite the possible tailwinds this fashion season may bring, Duval emphasized macro headwinds within the space, including, "economic uncertainty and department store weakness." Based on these, the analyst concluded, "[W]e think the retailer will benefit fin FY17 from easier YoY comp's, exciting and new product in the pipeline, a market shift to larger handbags that carry higher AUR's and on on-going share repurchase program."

BlueFin does not currently cover Michael Kors.