Can Michael Kors Keep Going After Last Week's 16% Pop?

Image source: The Motley Fool.

Continue Reading Below

There are some more unrealized gains in the pocketbooks of Michael Kors shareholders these days. The company behind the namesake designer handbags and accessories saw its stock surge 16% higher last week, fueled by better than expected results and paving the way for growth in Greater China. The stock tacked on another 2% yesterday.

Revenue clocked in at $1.2 billion for the fiscal fourth quarter of 2016, 11% ahead of the prior year's showing, but there was an extra week in this fiscal period. A 22% spike in retail sales was held back by a mere 4% uptick at the wholesale level and a decline in licensing revenue.

Comps were still slightly positive, but most of the growth has come from expansion. Michael Kors has seen its empire grow from 526 to 668 retailer stores over the past year. There are also another 201 licensed international locations.

You have to go all the way back to the holiday quarter of 2013 to find the last time it's come through with accelerating year-over-year growth on a sequential basis -- according toS&P Global Market Intelligence

Margins contracted slightly, but it still managed to come through with a profit of $0.98 a share. That was just ahead of Wall Street forecasts. As challenging as things may have been lately for Michael Kors, it did manage to beat analyst profit targets in every quarter through fiscal 2016.

Continue Reading Below

The Chinese miracle

One of the knocks on Michael Kors as an investment is that it doesn't own its operations in China, a dream market as its upper middle class expands. That changed last week, after it announced a $500 million deal to acquire the exclusive licensee of the brand's representation in China and other Asian jurisdictions. That's a lot of money to shell out, but it will be worth it.

The licensee operates 91 retail stores and a half-dozen travel retail locations through China, Hong Kong, Macau, and Taiwan. It accounted for $197 million in revenue during the year ending in March, and the forecast is for roughly $200 million in revenue for just the 10 months alone of ownership during the current fiscal year at Michael Kors. The deal will be accretive this year if you back out one-time acquisition costs of $15 million, but even if you don't it will still be accretive starting in Michael Kors' next fiscal year.

Investors suffered through a brutal 2015, watching the stock lose nearly half of its value. Michael Kors stock is beating the market this year, and the encouraging quarter and needle-moving licensee acquisition should keep that going.

The article Can Michael Kors Keep Going After Last Week's 16% Pop?

Rick Munarrizfree for 30 daysconsidering a diverse range of insightsdisclosure policy