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Sep 26, 2012
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Michael Kors luxury beats US economy's blahs

Sep 26, 2012

NEW YORK - Since his Wall Street debut in December, upscale US fashion designer Michael Kors has seen profits soar and share value almost triple, proof of the luxury sector's resilience amid a torpid economy.

Image: Michael Kors

The eponymous ready-to-wear brand, launched in 1981 and divided since 2004 into several lines, from the luxury "Michael Kors" to the more accessible "MICHAEL" and "KORS" labels, has found firm footing on both the New York Stock Exchange and the catwalks.

His 2013 spring collection was a hit at New York's Fashion Week in early September. Kors's confidently rich yet casual designs echoed Yves Saint Laurent's 1960s Mondrian-inspired dresses in a collection filled with bold reds and yellows and clever accessories.

The nation's style-setters have voted clearly in favor, from celebrity Kim Kardashian, clad in a white and gold Michael Kors swimsuit in photos that have gone viral on social networks, to First Lady Michelle Obama, who wore his one-sleeved black evening gown at a gala in Washington on Saturday.

The enthusiasm appears contagious. The company, Michael Kors Holdings Ltd., more than doubled its profit in the fiscal 2011 ended in March compared with a year earlier, to $126.1 million on sales that were up a robust 62 percent at $1.3 billion.

On the NYSE, shares under the ticker symbol KORS have soared since the initial public offering in December, rising from $20 to more than $54 at Monday's close.

But that success led a group of shareholders to announce Tuesday their plan to sell 23 million shares at $53 each, and the shares dived 4.04 percent Tuesday amid an overall market sell-off, to $52.30.

The market capitalization of the company, which sits at the top end of the ready-to-wear apparel and accessories perch carved out by fellow American designer Ralph Lauren, is valued at about $10.35 billion.

"We continue to be thoroughly impressed by the topline gains and brand momentum KORS displays," said Randal Konik, an equity analyst at Jefferies.

"Clearly the company is doing a great job gaining market share even in a choppy macro environment, and turning a healthy profit on these sales," the analyst said.

One of the company's strengths, analysts say, is its focused positioning in accessories -- bags, jewelry, watches, sunglasses, footwear -- which account for about 75 percent of sales, a number the company is hoping to grow to between 80 percent and 85 percent.

Keeping the strategy on accessories rather than clothing makes sense, said Oliver Chen at Citi.

"We believe accessory companies will continue to have stronger global prospects and more attractive competitive moats," Chen said.

Christopher Low at FTN Financial said that luxury companies have held their own despite the deep 2008-2009 recession and the sluggish recovery.

"Even for most of the recession, the luxury retailers did fairly well," Low said, pointing to demand for French brands Louis Vuitton and Hermes and, in the US, upscale retailers Saks Fifth Avenue and Tiffany.

Michael Kors Holdings claims a presence in 74 countries, with 191 sales points in North America and 46 elsewhere, particularly in Europe and Japan.

"We like the long-term story here with Kors's accessible luxury brand positioning, early-stage growth profile and significant international expansion," said Citi's Konik.by Prune Perromat

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