Eyewear and buyback should boost
Economy and the health of the consumer.In our last article covering retailer home depot(Nyse:Hd)We highlighted several economic indicators that we believe point to a strong consumer heading into the holidays.Whether it be lower gas prices, rising wages, falling unemployment or higher confidence, stocks seem to be ratcheting higher.One notable exception to the almost universal rise of the stock market seems to be michaelKors(Nyse:Kors).Though the stock has dwindled over the last several months, we believe that with a long term, multi year perspective in mind, the company provides some solid growth and value potential, most notably overseas, and we'd like to highlight why.
Recent earnings show international potential
Kors' most recent earnings call garnered a muted reaction from wall street.The company reported revenue of $1 billion, representing a 43% year over michael kors crossbody bags rhea year increase.
Though kors grew revenue in north america by 30%, feria believes international expansion provides the more potent catalyst for revenue growth.In europe, revenue grew by 109%, with same store sales coming in at a whopping 41% growth.Importantly, kors expects to open 50 stores across europe during fiscal 2015.
Japan, china, and the rest of the far east region also provide important opportunities for kors.Japan, for instance grew revenues at a 106% clip to $16 million, with almost 53% increase in same store michael kors outlet sales.
Interestingly, in china, kors has entered into a licensing deal with fehl, or the far michael kors accessories jewelry easy holdings limited, that maintains a mere 50 points of sale locations throughout china.A recent bank of america merril lynch research note expects this number to grow to over 1000 points of sale in the long term, contributing handsomely to revenue growth.Ceo john idol explained:
We now have 116 michael kors retail locations in greater china, korea, southeast asia and australia and believe we can ultimately have 200 locations in this region.We see asia as an important region for development as we grow our luxury brand worldwide and we are focused on building the business for the long term.
The deal with fehl, expanding kors' 50 locations to compete with coach's(Nyse:Coh)Almost 200 locations should put the company on stronger footing in the region.Reporting 43% growth of licensing revenue, the company has shown strong commitment to generating a michael kors crossbody bags sloan significant portion of its revenue from licensing, particularly its watches and jewelry.
Kors will be launching updated eyewear with its new licensee luxottica beginning in january.The ten year deal is widely expected to help kors establish a stronger foothold in the eyewear industry.As one of the biggest eyewear companies in europe, luxottica should provide kors the opportunity to grow its eyewear segment in a region that is expected to grow for kors more generally.The company announced a $1 billion dollar stock repurchase program to unfold over the next two years:
We are pleased to initiate a share repurchase program, which reflects the board and management's confidence in our ability to achieve our long term growth objectives and generate strong free cash flow.This repurchase program underscores our commitment to returning value to shareholders, while maintaining the financial flexibility to strategically invest in our business.
We are very curious to see how much, if any, of the buyback was performed while the stock has been in the low $70s range.With a decent stock repurchase also recently announced, we find ourselves agreeing with management that the company is undervalued and the low $70s offer a compelling entry point.
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