Before “affordable luxury” retailer Michael Kors (NYSE: KORS) reported its latest quarterly results earlier this month, Wall Street was expecting less than $860 million in sales. Instead, Michael Kors delivered $1 billion, with sales surging 59 percent over year-ago levels. Earnings per share soared 73 percent.
The company is growing at the expense of slower (or fading) competitors. While Michael Kors delivered a whopping increase of 51 percent in North American sales in its latest quarter, Coach announced a decline of 9 percent in total sales.
Fashion is generally a fickle and competitive business, but Michael Kors is achieving hefty profit margins by differentiating itself with brand value and exclusive designs. It’s also doing so in a challenging economic environment in which many other retailers are blaming the unusually cold weather and lackluster consumer spending for their weak results.
Michael Kors has plenty of room for expansion, both in the U.S. and in global markets, especially if demand remains as hot as it is. Management believes it has room for nearly 700 global retail stores versus a recent total of 395.
The stock trades at a forward price-to-earnings (P/E) ratio near 25. That’s hardly excessive for such an extraordinary growth company, so you might want to take a closer look. (The Motley Fool has recommended and owns shares of Michael Kors and Coach.)
Ask the Fool
Q: Many companies have been posting solid results in their financial reports lately, so why has the market done a lot of dropping so far in 2014? – W.D., Miami
A: It’s good to think of the overall value of the stock market, or of a single stock, as reflecting what investors think of its future. Its past performance isn’t nearly as relevant as what’s expected.
Also, remember that the S&P 500 surged about 32 percent in 2013, so it’s reasonable for it to catch its breath a bit. Healthy stocks and the overall market tend to rise in value over time, but they don’t do so in a straight line. Volatility is to be expected.
Psychology also plays a part, especially in the short run. If there’s some bad economic news, investors might get skittish and sell, possibly overreacting, just as good economic reports will send the market up. Think of expectations, too. A company might report a solid quarter, but if investors were expecting even stronger results, the stock might take a hit.
My dumbest investment
My dumbest investment was paying to learn forex online. I was promised returns of 30 to 40 percent if I just followed the daily trades I was shown. I didn’t realize what wonderfully great liars salespeople can be! – S., online
The Fool responds: The foreign exchange market, or FX, or forex, is used by everyone from tourists to multinational corporations to central banks to do business and maintain stability. It can be handy for some savvy investors in some situations. But when beginning investors and even seasoned ones use it to make speculative bets, it can be a dangerous place.
Many people who invested significant sums in the foreign exchange market have been wiped out when currencies don’t move in expected ways. A 2011 Los Angeles Times article noted that at two key forex brokerages, “customers are losing money in spectacular fashion.”
Beware of anyone promising fat investment returns in exchange for your hard-earned money.
A brave girl jumps from the rocks on the west side of Tubbs Hill as her two friends watch. (Don Sausser/Facebook photo)
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