You are on page 1of 5

September 20, 2016

Michael Kors Holdings Ltd


NYSE: KORS - Apparel/Footwear Retail

Grade Earnings Quick Facts

73.6 Last Earnings Release

Last Qtr. Actual vs. Est.


08/10/2016 Dividend Yield

$0.88 / $0.74 52 Wk High


N/A

$58.54

Next Release 11/01/2016 $0.74 52 Wk Low $35.57


$49.62
09/19/2016
Year Ending 03/31/2017 $4.58 Short Interest 11% of float
Rated 'BUY' since Feb 12th, 2013, when it
Year Ending 03/31/2018 $4.82 Market Cap $8.8B
was upgraded from 'HOLD'

Overview
Company Scores Very Good Fundamental Grades
MarketGrader currently has a BUY rating on Michael
Kors Holdings Ltd (KORS), based on a final overall
grade of 73.6 scored by the company's fundamental
analysis. Michael Kors Holdings Ltd scores at the 98th
percentile among all 5365 North American equities
currently followed by MarketGrader. Our present rating
dates to February 12, 2013, when it was upgraded from
a HOLD. Relative to the Apparel/Footwear Retail sub-
industry, which is comprised of 41 companies, Michael
Kors Holdings Ltd's grade of 73.6 ranks third. The
industry grade leader is Foot Locker, Inc. (FL) with an
overall grade of 77.4. The stock has performed poorly
in the last six months in relative terms, down 13.83%
compared with the Apparel/Footwear Retail sub-
industry, down 4.85% and the S&P 500 Index, up
5.07%. Please go to pages two and three of this report
for a complete breakdown of KORS's fundamental
analysis.

Price, Rating and Sentiment History - 2 Years

MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved. 1


September 20, 2016

Michael Kors Holdings Ltd


NYSE: KORS - Apparel/Footwear Retail 73.6
While Not Entirely Negative, Growth Indicators Show Several Signs of
Growth B- Weakness
Michael Kors Holdings, which reported $4.71 billion in total revenues for
Market Growth LT B+
the 12 months ended last quarter, has seen its sales growth rate
deteriorate recently. Relative to its $2.41 billion in sales for the 12 months
Market Growth ST F
ended three years ago, the latest figure represents a very healthy 95.79%
EPS Growth growth rate. However, when comparing its latest quarterly revenue of
A+
$987.90 million to the $985.98 million from the same quarter a year ago,
Growth Potential D
for a 0.20% year-over-year growth rate, it becomes clear that Michael
Kors Holdings's top line growth has decelerated significantly. If this yearly Revenue Qtrly. 06/30/2016 $988M
Earnings Momentum C
drag on growth continues for a couple more quarters, the company's long Revenue Qtrly. Year Ago $986M
term growth grades will fall, affecting our overall rating. If the stock price Revenue 1 Yr. Chg. 0.2%
Earnings Surprise B
reflects this decline, it is likely Michael Kors Holdings's rating will improve Revenue 12 Mo. Tr. Latest $4.7B
from the Value perspective, which will actually have a positive impact on its overall rating. The company also Revenue 12 Mo. Tr. 3Y Ago $2.4B
reported in its latest earnings announcement that profits had fallen from the year earlier period, reversing a trend Revenue 12 Mo. Tr. 3Y Chg. 95.79%
of long term profit growth. By long term growth we refer to the change in full year (12-month trailing) net income
from the comparable period three years earlier. Michael Kors Holdings's Second quarter net fell 15.63% to
$147.10 million from the year earlier profit of $174.36 million (excluding extraordinary items) , which contrasts
with its growth in 12-month trailing profit over a three year period. Also including last quarter's results, the
company's profit grew to $811.82 million for the 12 months ended June 30, 2016, a 78.83% jump from full year
profit of $453.95 million reported for the period ended three years earlier. During the last quarter the company's
ongoing margin contraction accelerated, with an average drop in EBITDA, operating and net margins of 12.23%
from the year ago period.
The substantial earnings surprise reported by the company on August 10, 2016 failed to excite investors despite
per share earnings that were 18.92% higher than what analysts had anticipated; the stock fell 1.96% after the
report, signaling the surprise may be attributed to a one-time event or the company may have provided lowered
guidance for future quarters. Even though this report disappointed investors, it extended a trend of positive Net Income Qtrly. 06/30/2016 $147M
earnings surprises, as it has surpassed analysts' estimates by an average of 9.08% in the last six reports. Net Income Qtrly. Year Ago $174M
Net Income 1 Yr. Chg. (15.63%)
Net Income 12 Mo. Tr. Latest $812M
Net Income 12 Mo. Tr. 3Y Ago $454M
Net Income 12 Mo. Tr. 3Y Chg. 78.83%

Company's Shares Are Attractively Priced Considering the Strength


Value A- of its Overall Fundamentals
Shares of Michael Kors Holdings are trading currently at 10.66 times 12-
Capital Structure A month earnings. This P/E ratio represents a 81.68% discount to the
MarketGrader-calculated "optimum" P/E ratio of 58.19, which is based on
P/E Analysis A+the company's two-year EPS growth rate. According to this calculation,
Price/Book Ratio A-which looks at the company's growth across rolling 12-month periods,
Michael Kors Holdings's earnings per share have grown at an impressive
Price/Cash Flow Ratio A annualized rate of 71.42% in the last five years. This growth has resulted
in strong financial performance, evidenced by the company's Profitability P/E Ratio 12 Mo. Tr. 06/30/2016 11.18
Price/Sales Ratio C grade. For this to continue, it must reverse its recent margin slide soon.
Optimum P/E Ratio 58.19
The stock also trades at 10.66 times forward earnings estimates for the
Market Value A next four quarters, lower than its trailing P/E and the S&P 500 index's Forward P/E Ratio 10.66
S&P 500 Forward P/E Ratio 15.20
forward P/E of 15.20. By placing a lower multiple on the company's future earnings than it does on the market as
a whole, investors may see the company as financially strong but with relatively poor growth prospects. This may Price to (Tangible) Book Ratio 8.65
offer a valuable opportunity for patient investors willing to wait for future earnings reports. Price-to-Cash Flow Ratio 6.89
Price/Sales Ratio 1.78
Investors are currently valuing Michael Kors Holdings's shares at 5.74 times their tangible book value (which
excludes intangible assets such as goodwill), a relatively healthy valuation. When the company's intangible
assets, which represent a modest 42.24% of stockholders' equity, are added back to the rest of its assets, the
stock's price to book ratio drops to 5.00. Based on the $7.20 in cash flow per share generated by the company in
the last twelve months, at the current price of $49.62 the stock trades at 6.89 times cash flow, an attractive
valuation considering the strength of its overall fundamentals. Its shares also trade at 1.78 times trailing 12-
month sales, a 68.92% premium to its industry average of 1.05. Finally, from a value perspective, we look at how
much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. From
this perspective Michael Kors Holdings's market cap of $8.76 billion , which is only 8.72 times larger than its latest
quarterly net income (plus depreciation), seems like an attractive valuation.

MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved. 2


September 20, 2016

Michael Kors Holdings Ltd


NYSE: KORS - Apparel/Footwear Retail 73.6
Profitability Record Is Excellent Across the Board Suggesting a Very
Profitability A Well Managed Operation
Michael Kors Holdings is very profitable and this is reflected across the
Asset Utilization A+
board in this category's indicators, with operating margins that exceed its
peer group average and a very solid return on shareholder equity, all
Capital Utilization B+
based on 12-month trailing data. The $811.82 million in net profit it earned
Operating Margins during the same period accounted for 17.22% of total revenue, a healthy
A-
net profit margin. The average operating margin for the Apparel/Footwear
Relative Margins A+
Retail industry was 8.63% during the same period, 165.10% below the
company's 23.62%. Michael Kors Holdings's return on equity, based on
Return on Equity A+
trailing 12-month earnings, is not only outstanding at 46.27%, but it's
higher than the 41.53% return on equity from the year earlier period. This
Quality of Revenues A+
is an important metric of management efficiency in our grading system, as
it measures the amount earned on an investment in the company's common stock.
Given such strong returns the company's capital structure seems too conservative, especially assuming it could
raise debt capital to invest into what is a steady and profitable business. Michael Kors Holdings's has no long-
term debt on its balance sheet. Michael Kors Holdings's core operations, as measured by the company's
EBITDA, have generated $1.31 billion in earnings over the last twelve months, a modest 4.65% decline from the
$1.38 billion earned in the equivalent period ended a year ago. EBITDA is used as a way of measuring core
earnings since it includes money earned in its operations such as interest expense, income taxes paid and
depreciation and amortization, both of which are non-cash charges.

Company's Cash Flow Is Very Well Managed as Our Analysis Reflects


Cash Flow A a Very Healthy Operation
Michael Kors Holdings made $322.50 million in cash flow last quarter,
Cash Flow Growth B-
15.31% better than the $279.67 million reported last year for the
comparable period. This is significantly lower than the 38.80% growth in
EBIDTA Margin B
twelve month trailing cash flow, an indication of a sharp slowdown in the
Debt/Cash Flow Ratio company's core operating income and overall business environment.
A+
Even though the company has $248.60 million in total debt, its net debt is
Interest Cov. Capacity A+
virtually zero since it has $338.50 million in cash on hand; and since it
generated $236.10 million in earnings before interest, taxes, depreciation Cash Flow Qtrly. 06/30/2016 $322M
Economic Value A+
and amortization last quarter, it's safe to say its liquidity is remarkable.
Cash Flow Qtrly Year Ago $280M
Therefore the company's debt is not only very manageable with its own
Retention Rate A+
cash flow but could be increased if it wanted to pursue strategic growth Cash Flow 1 Yr. Chg. 15.31%
Cash Flow 12 Mo. Tr. Latest $1.3B
opportunities. The company also has the ability to enhance shareholder returns through dividends or by
repurchasing its own shares, boosting the future value of its earnings. The $338.50 million of cash on hand and Cash Flow 12 Mo. Tr. 3Y Ago $480M
equivalents on its balance sheet is actually 58.59% lower than a year ago when it had $817.47 million, yet it is Cash Flow 12 Mo. Tr. 3Y Chg. 164.62%
enough to exceed the company's new leverage now that the company's total debt accounts for 12.41% of total Free Cash Flow Last Qtr. $276M
capital. The company had no debt a year ago.
Our Economic Value indicator looks at the company's total return to shareholders in the last twelve months after
accounting not only for the operating costs of running the business but also the cost of the capital employed. Economic Value
Based on 12 month trailing operating income, Michael Kors Holdings had a remarkable 63.46% return on invested Total Invested Capital $2.0B
capital during the period. Total invested capital as of the company's latest quarter was $1.75 billion, including all Return on Inv. Capital 63.46%
forms of equity as well as long term debt. By our measure, the company's total cost of capital for the period in Weighted Cost of Equity 10.54%
question was only 10.54%, which, when subtracted from the aforementioned return on invested capital, results in Weighted Cost of Debt 0.00%
total economic value added (EVA) of 52.92% for the last twelve months, an excellent measure of true shareholder Total Cost of Capital 10.54%
returns. Michael Kors Holdings does not pay a dividend and hasn't done so within at least the last five years. Economic Value Added 52.92%

MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved. 3


September 20, 2016

Michael Kors Holdings Ltd


NYSE: KORS - Apparel/Footwear Retail 73.6
Profile
Michael Kors Holdings Ltd. engages in the design and distribution of sportswear, accessories, Key Facts:
footwear and apparel. It engages in the design, marketing, distribution and retailing of branded 33 Kingsway
women's apparel and accessories and men's apparel bearing the Michael Kors trade name and London ,GL WC2B 6UF
related trademarks MICHAEL KORS, MICHAEL MICHAEL KORS and various other related Phone:
www.michaelkors.com
trademarks and logos. The company operates its business through three segments: Retail,
Wholesale and Licensing. The Retail segment operates collection stores, lifestyle stores, including
concessions and outlet stores located primarily in the United States, Canada, Europe and Japan. Biggest Company in Sub-Industry
The Wholesale segment sells the company's products to department stores, as well as specialty TJX Companies, Inc. (TJX)
retail stores and travel shopping locations. The Licensing segment licenses its trademarks on Grade 70.9
products such as fragrances, cosmetics, eyewear, leather goods, jewelry, watches, coats, men's Market Cap:$49.04 billion
suits, swimwear, furs and ties. The company was founded on December 13, 2002 and is
headquartered in London, the United Kingdom.
Smallest Company in Sub-Industry
Gordmans Stores, Inc. (GMAN)
Grade 28.4
Market Cap:$19.14 million

MarketGrader Dilution Analysis Income Last Qtr 12 Mo.


Statement (06/2016) Trailing
Impact of Change in Shares on EPS - Q3 2016
Dilution Summary Revenue $988M $4.7B
*EPS Latest $0.83 Op. Income $187M $1.1B
*EPS Year Ago $0.87
Net Income $147M $812M
EPS Change 1 Yr. (4%)
*EPS $0.83 0
C. Shares - Latest(M) 177
C. Shares - Yr Ago(M) 200 *Earnings per share are based on fully diluted net income per share
excluding extrodinary items. This number may not match the
C. Shares - 1Yr Chg. (12%) headline number reported by the company.

EPS if Yr. Ago Shares $0.74


EPS Chg. if Yr. Ago (16%)
EPS Loss from Dilution $0.10
Balance Sheet Latest

Total Assets $2.7B


*Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company.

Total Debt $249M

Stockholders Eq. $1.8B

All numbers in millions except EPS

Ratios
Price/Earnings (12 mo. trailing) 11.18

Price/Tangible Book 8.65

Price/Cash Flow 6.89

Price/Sales 1.78

Debt/Cash Flow 19.56

Return on Equity 46.27%

Gross Margin (12 mo. trailing) 54.76%

Operating Margin (12 mo. trailing) 23.62%


Total Assets $2.7B Gross Margin last Qtr. 54.76%
Net Profit Margin (12 mo. trailing) 17.22%
Intangible Assets $741M EBITDA Margin last Qtr. 23.90%
Long Term Debt 0 Operating Margin last Qtr. 18.93%
Total Debt $249M Operating Margin Sub-Industry Avg. 8.63%
Book Value $1.8B Operating Margin 12 mo. trailing 23.62%
Enterprise Value ($90M) Net Profit Margin Last Qtr. 14.89%

MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved. 4


September 20, 2016

Michael Kors Holdings Ltd


NYSE: KORS - Apparel/Footwear Retail 73.6
Top Down Analysis
# Ticker Grade Sentiment Name Price Next EPS
1 LOPE 80.27 P Grand Canyon Education, Inc. $40.19 08/08/2016
Consumer Discretionary 2 DIS 78.44 Walt Disney Company $92.63 11/03/2016
N

Stocks in Sector: 694 3 SBGI 78.35 N Sinclair Broadcast Group, Inc. Class A $28.68 11/02/2016
Buys: 128 (18.44%) 4 FL 77.43 P Foot Locker, Inc. $66.62 08/22/2016
Holds: 150 (21.61%)
Sells: 416 (59.94%) 5 MHK 76.63 P Mohawk Industries, Inc. $206.37 10/27/2016
6 NTRI 76.41 P Nutrisystem, Inc. $28.30 10/31/2016
No. of stocks at:
7 HD 76.20 P Home Depot, Inc. $126.29 11/15/2016
52-Wk. High: 22
52-Wk. Low: 15 8 BBY 76.05 P Best Buy Co., Inc. $38.14 11/15/2016
Above 50 & 200-day MA: 271 9 THO 74.88 P Thor Industries, Inc. $80.19 09/22/2016
Below 50 & 200-day MA: 261
10 SWK 74.69 P Stanley Black & Decker, Inc. $121.26 10/12/2016
13 KORS 73.62 N Michael Kors Holdings Ltd $49.62 11/01/2016

# Ticker Grade Sentiment Name Price Next EPS


1 FL 77.43 P Foot Locker, Inc. $66.62 08/22/2016
Apparel/Footwear Retail
2 ROST 74.21 P Ross Stores, Inc. $62.53 11/17/2016
Stocks in Sub-Industry: 41 3 KORS 73.62 N Michael Kors Holdings Ltd $49.62 11/01/2016
Buys: 10 (24.39%)
4 FRAN 72.30 P Francesca's Holdings Corporation $15.32 09/08/2016
Holds: 8 (19.51%)
Sells: 23 (56.10%) 5 TJX 70.94 N TJX Companies, Inc. $74.69 11/15/2016
6 AEO 70.81 P American Eagle Outfitters, Inc. $18.71 11/30/2016
No. of stocks at:
52-Wk. High: 3 7 CRI 68.50 N Carter's, Inc. $97.56 10/20/2016
52-Wk. Low: 1 8 URBN 67.90 P Urban Outfitters, Inc. $35.88 11/14/2016
Above 50 & 200-day MA: 19
9 LULU 63.75 N Lululemon Athletica Inc $65.81 12/01/2016
Below 50 & 200-day MA: 16
10 PLCE 60.43 P Children's Place, Inc. $83.64 11/17/2016

1. Price Trend. B+ 2. Price Momentum. D


5.9
3. Earnings Guidance. B- 4. Short Interest. B-

Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to
such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not
have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment
strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may
rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. MarketGrader does not make markets
in any of the securities mentioned in this report. MarketGrader does not have any investment banking relationships. MarketGrader and its employees may have long/short positions or holdings in the securities or other related investments of companies mentioned
herein. Officers or Directors of MarketGrader.com Corp. are not employees of covered companies. MarketGrader or any of its employees do not own shares equal to one percent or more of the company in this report.

MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved. 5

You might also like