Why Fly Coach When You Can Plot a Better Kors?
Shares of Michael Kors soared 6% yesterday and hit a new all-time high this morning after the high-end retailer posted another blowout quarter. Anyone who has been following the company in recent quarters shouldn't be surprised by another period of market-trouncing growth fueled by a double-digit spike in comps. However, against this backdrop we see rival Coach continuing to struggle. Premium shopping tastes have changed, but some investors are merely ignoring the memo.
Yes, Coach is an active recommendation in one of our newsletter services. My opinion that Kors is the better bet is merely my own. I can also concede that Coach won't be a bad investment here. Unlike Kors, it pays out a quarterly dividend that now works out to a tempting 2.7% yield. Coach is also a lot cheaper than Kors on an earnings basis. Even though analysts see earnings declining this fiscal year ending in June at Coach, the stock is fetching just 13 times the following year's profit target. Coach would be a bargain here if it can turn things around, and the healthy payouts will reward patient investors.
Kors isn't cheap. It's trading at 23 times next year's projected earnings. However, it's worth the market premium. Did you see yesterday's quarterly report? Revenue soared 39%, fueled partly by store expansion and wholesale growth but mostly on the heels of a 23% spike in comps. Earnings grew even faster. Paying 23 times forward earnings is a rich proposition, but it's a relative bargain when compared to its growth rate.
The future is equally bright for those buying into the growing consumer appetite for Kors' pricey handbags and accessories. The high-end designer is once again boosting its outlook. Oh, and if guidance calling for same-store sales to climb 15% to 20% in the holiday quarter sounds impressive, consider that Kors offered the same outlook for the previous quarter and then blew away those ambitious projections.
Coach isn't doing as well. Sales, net income, and comps all dipped slightly during the same three months. If Coach paints a gloomy picture of the upscale shopper, Kors blasts that same snapshot with Technicolor. One can't deny that success at one maker of premium handbags is coming at the expense of the other. Coach may be a worthy investment for income investors who believe the company will regain its popularity, but growth investors really should consider Kors until it starts to disappoint the way that Coach has in recent quarters.
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The article Why Fly Coach When You Can Plot a Better Kors? originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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