Strong appetite for luxury spurs Michael Kors sales

Tue Nov 5, 2013 4:17pm EST

A model presents a creation at the Michael Kors Autumn/Winter 2013 collection during New York Fashion Week in this February 13, 2013 file photo. REUTERS/Andrew Kelly/Files

A model presents a creation at the Michael Kors Autumn/Winter 2013 collection during New York Fashion Week in this February 13, 2013 file photo.

Credit: Reuters/Andrew Kelly/Files

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(Reuters) - Michael Kors Holdings Ltd (KORS.N) reported a higher-than-expected 40 percent jump in quarterly revenue and said it would open about 100 stores in 2014 as demand for luxury goods such as its trendy handbags and watches shows no sign of fading.

The company's shares, which have more than tripled since it went public in 2011, rose more than 6 percent to a life high.

Signs of economic recovery in the United States and Europe have increased demand for affordable luxury items, helping companies such as Michael Kors, Fifth & Pacific Cos Inc's FNP.N kate spade, Fossil Group Inc (FOSL.O), Estee Lauder Cos Inc (EL.N) and privately owned Tory Burch.

Men are also spending more on luxury, analysts have said, encouraging companies to step up investments.

Michael Kors, controlled by fashion designer and former "Project Runway" TV show judge Michael Kors, is one of the fastest-growing companies in the luxury and so-called "affordable luxury" segments.

The company's handbags sell for $200 to $3,000, while watches are priced at between $150 and $550.

"By driving a frequent flow of new and innovative products through its own stores and wholesale shops, the company is generating consumer excitement in a way we've never seen in the luxury accessories category," said Omar Saad, an analyst at research firm ISI Group said on Tuesday.

Michael Kors' quarterly sales have risen by at least 40 percent every quarter since the company went public. The company's apparel and accessories have been spotted on First Lady Michelle Obama and celebrities such as Jennifer Lopez.

Under its affordable luxury brand, MICHAEL Michael Kors, the company offers products similar to those at its high-end brand, KORS Michael Kors, but at a cheaper price.

Michael Kors said it expected to earn 83-85 cents per share in the current quarter, on revenue of $845 million-$855 million. Analysts on average expect a profit of 85 cents per share on revenue of $841.2 million.

Piper Jaffray analyst Erinn Murphy said she thinks the company's guidance for the holiday season is conservative.

"I think the brand has a lot of key product catalyst that should help them during the holiday season," Murphy said. " Fragrance, jewelry, watches and handbags are all going to be very strong gift-giving items in the holiday season."

The company has been growing at a blistering pace and is aggressively expanding in the United States and Europe.

Michael Kors has also increased its presence in department stores, including Macy's (M.N) and Nordstrom (JWN.N).

The company said on Tuesday it would continue to expand, spend on building its brand and employ more people even if it had to sacrifice margins moderately.

"We would rather invest in the company over the next three-plus years, even if that meant the operating margin declined slightly," Chief Executive John Idol said in a post-earnings conference call.

Kors' success has hit Coach Inc (COH.N) particularly hard. The rival company, known for its Poppy handbags, reported a 7 percent fall in same-store sales in North America in the latest quarter.

Michael Kors' net income jumped 49 percent to $145.8 million, or 71 cents per share, in the second quarter ended September 28 from $97.8 million, or 49 cents per share, a year earlier. Analysts on average had expected 68 cents, according to Thomson Reuters I/B/E/S. [ID:nBw8n968Ja]

Revenue rose 40 percent to $740.3 million, beating the average analyst estimate of $726 million.

Comparable-store sales in North America, the company's largest market, rose 21 percent.

Total sales in North America rose 31 percent to $618.3 million. Sales in Europe more than doubled to $114 million.

The company raised $944 million in its 2011 IPO in one of the biggest-ever listings by a U.S. fashion company.

The company now has a market capitalization of more than $15 billion, about the same as industry stalwart Ralph Lauren Corp (RL.N).

Michael Kors shares were up 6 percent at $79.31 at midday after hitting a high of $79.90 on the New York Stock Exchange. The stock had risen about 50 percent this year up to Monday's close.

(Refiles to add dropped words "and" and "it" in paragraph 1)

(Editing by Kirti Pandey, Saumyadeb Chakrabarty and Ted Kerr)

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