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13% Downside Seen For Michael Kors As Market Saturation Persists

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13% Downside Seen For Michael Kors As Market Saturation Persists
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In its initiation note on U.S. softlines and specialty retail stocks, Bernstein said it sees 13-percent downside for the shares of Michael Kors Holdings Ltd (NYSE: KORS) versus the current share price.

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.

See also: Contrarian: Amazon Is One Of The Weakest Retailers There Is

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.

Latest Ratings for KORS

DateFirmActionFromTo
Nov 2017Deutsche BankMaintainsHold
Nov 2017BarclaysMaintainsEqual-Weight
Nov 2017MKM PartnersUpgradesSellNeutral

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