Near-Term Challenges Continue To Weigh On Michael Kors, Oppenheimer Says In Downgrade

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Ongoing challenges with Michael Kors Holdings Ltd KORS' core brand will likely weigh on top-line trends, according to Oppenheimer. 

The Analyst 

Analyst Brian Nagel downgraded Michael Kors from Outperform to Perform and removed a $90 price target. 

The Thesis

After studying Kors, Nagel said he came away concerned about ongoing challenges with inventory management and replenishment that the core brand is experiencing while the company looks to integrate newly acquired Versace. (See the analyst's track record here.) 

Kors is still seeking balance with inventories and promotions, staging a strategic shift away from aggressive promotional activity, he said. 

“Michael Kors is still working to find balance between in-stocks and markdowns, with the brand now going through a second wave of inventory reductions in the Americas. While transitory, sales and margin trends likely remain uneven until this hurdle lowers." 

Asia continues to be a bright spot for the company, with sales in 2018 and the first half of fiscal 2019 tracking at 30-percent and 12-percent gains, respectively, Nagel said. This is owed to an expanding retail and wholesale presence and positive sales momentum, he said.

“We expect continued top-line strength in Asia to help to offset likely choppier trends in the Americas and Europe,” the analyst said. 

Despite near-term uncertainty, Nagel said he's optimistic longer-term about the synergistic opportunities within Kors' structure, and added that a depressed valuation is apt to lend support to shares “even if fundamentals continue to falter.”

The Price Action 

Kors shares were down 3.24 percent at $45.69 at the time of publication Friday. 

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Related Links:

Need A Reason To Buy Michael Kors? UBS Offers 8

Survey: Michael Kors Still The Preferred Handbag Among Teens

Photo by See-ming Lee/Wikimedia. 

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Posted In: Analyst ColorDowngradesAnalyst RatingsBrian NagelfashionOppenheimerretailVersace
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