2 Things We Learned About Michael Kors

Michael Kors Holdings Ltd KORS was up nearly 20 percent on Tuesday after the fashion accessories maker beat quarterly earnings.

Buckingham Research Group analyst Scott Krasik had two takeaways from the 2018 first-quarter earnings report:

"The Michael Kors brand still has a loyal consumer base though smaller will pay full price for the brand evidenced by KORS' less negative same store sales higher retail operating margin YOY."

“Demand for the brand overall continues to shrink as wholesale sales declined 23% (significantly worse than expected) and saw major margin compression.” (Kors has been hurt by online competition).

Shares Up Sharply After Beat

The stock was trading at $44.34, up more than 19 percent. Krasik said the price target of $34 was under review pending a conference call with the company. He maintains a Neutral rating (see Krasik's track record here).

Related Link: Michael Kors To Buy Jimmy Choo

The company reported 1Q18 adjusted earnings per share of 80 cents, beating expectations, while sales were $952.4 million, down 3.6 percent from the year-ago period.

“While gross margin was slightly below our estimate, KORS adjusted operating margin was 20.1%, +30 bps YoY driven by strong expense management,” Kasik wrote.

“With global comps expected to decline at least at a mid-single digit rate (cc) in FY18 on top of strong double digit declines in wholesale, it is difficult to say with confidence that margins will inflect in FY19 as suggested,” he added. “We remain on the sideline despite an ‘attractive’ valuation and are looking to become more constructive when we get confidence that sales and margins in FY18 represent trough levels.”

At time of publication, shares of Michael Kors were up 19.72 percent at $44.57.

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Image Credit: By SPERA.de Designerschuhe, Taschen und Accessoires from Deutschland [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons