Is Michael Kors in Danger Overseas?

Since its public debut last year, Michael Kors (NYS: KORS) has blown up. The stock is up 83% this year, and its recent earnings release only bolstered its strong position. The question for investors: What does the future of this stock look like? Is it going to continue being the roadrunner that we've seen so far, or will its international plans turn it into a coyote? Let's see what the company is forecasting, and then look at the big picture to get a better view.

Chinese democracy
Kors is actually based in Hong Kong, but the company's stores are concentrated in the U.S. At the end of its last quarter, Kors operated 204 stores in North America and only 49 internationally. There is a similar split between American and international wholesale outlets, such as department stores, with 2,061 in America and 748 international locations. That means that the company really needs to focus on international growth, if it's going to continue growing at its current rate.

If we compare it to Coach (NYS: COH) , we can see why Kors' shares are having such a great year. Coach had an American same-store sales increase of 1.7% last quarter. Kors' American same-store sales grew 38%. That's Alice-in-Wonderland-style growth from Kors, but at some point, the company is going to reach a saturation point in the U.S. That's why it's going to be up to the international segment to really push forward. Coach has done well in Asia so far, and the hope is that Kors can repeat that success (hopefully without replicating Coach's current rebuilding year).

So far, international sales have been good, but still lag behind their U.S. counterparts. Last quarter, same-store sales in Europe were up 24%, while comps in Japan were up 20%. Right now, international sales also account for almost nothing in terms of total revenue. Revenue generated through both retail and wholesale internationally only accounted for 9% of last quarter's total revenue.

Why international matters
Kors needs to get its international ball rolling to keep up with the picture it's painted of itself. Right now, the company is predicting an increase in same-store sales of over 20% for its fiscal year. That's a distinct drop from this last quarter, and means that the end of 30%+ growth is in sight. The company is going to have to enter new markets internationally. That's been done successfully at other high-end retailers like Tiffany (NYS: TIF) , which had an increase of 12% in same-store sales in Japan last quarter, although European same-store sales were flat. For Tiffany, Japanese growth helped increase revenue by 8%, and ensured that slower sales in the U.S. were propped up internationally.

Contrast that execution with the self-imposed catapulting that Best Buy (NYS: BBY) has undertaken in China. International same-store sales dropped 11% last quarter, and the company's Five Star brand has been getting killed. Whereas the successful companies have seen international operations add to their bottom line, Best Buy's failure has helped knock revenue back, offsetting growth in the U.S. Overall, the company only grew revenue by 2% last quarter, even though U.S. revenue increased 5%.

How to succeed in international business
Kors needs to start pushing its international growth a bit more. This isn't just because the company needs to expand that base, but because it also needs to get a better handle on how international tastes differ from domestic ones. Many companies push out the same store designs and products that have made them successful in the U.S. without taking differing tastes into account. Tiffany has been criticized for its failures a few years ago in China for just this reason.

The biggest hesitation I have with Kors right now is the lack of a clear plan. From reading its SEC filings and listening to the company's discussion, the domestic plan is crystal clear, but the international plan is fuzzy. Europe is profitable right now, but only mildly profitable. Kors' management has said that getting truly set up in Japan is still five years off, due to brand perceptions. But it all hinges on brand penetration.

I still like Kors over the long run, but it's not a cheap buy. The company has attracted a lot of attention from the investing community, and it's trading at a forward P/E of 35. If you're looking for a more under-the-radar stock to add to your portfolio, check out the Fool's report: "3 Stocks Wall Street's Too Rich to Notice." These three companies are doing great things, but don't have the sexy factor that makes Kors so noticeable (and expensive). Get your free copy today to find out all the details.

The article Is Michael Kors in Danger Overseas? originally appeared on Fool.com.

Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Coach, Best Buy, and Tiffany. Motley Fool newsletter services have recommended buying shares of Coach. Motley Fool newsletter services have also recommended shorting Tiffany. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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