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Morgan Stanley Downgrades Michael Kors Holdings to ‘Equal-Weight’

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Price movement

Michael Kors Holdings (KORS) has a market cap of $7.7 billion. It fell 5.1% to close at $47.16 per share on November 14, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -6.2%, 1.1%, and 17.7%, respectively, on the same day.

KORS is trading 4.5% below its 20-day moving average, 2.8% below its 50-day moving average, and 6.4% below its 200-day moving average.

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Related ETF and peers

The Vanguard Mid-Cap Growth ETF (VOT) invests 0.58% of its holdings in Michael Kors. The ETF tracks a market cap–weighted index of mid-cap growth companies selected by the Center for Research in Security Prices (or CRSP). The YTD price movement of VOT was 4.9% on November 14.

The market caps of Michael Kors’s competitors are as follows:

  • Ralph Lauren (RL) — $8.8 billion
  • Coach (COH) — $10.5 billion

KORS’s rating

On November 14, 2016, Morgan Stanley downgraded Michael Kors Holdings’s rating to “equal-weight” from “overweight.”

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Performance of Michael Kors in fiscal 2Q17

Michael Kors (KORS) reported fiscal 2Q17 total revenue of $1.09 billion, a fall of 3.5% compared to total revenue of ~$1.1 billion in fiscal 2Q16. Revenue from the Retail segment rose 12.1%, and revenue from its Wholesale and Licensing segments fell 18.4% and 10.2%, respectively, in fiscal 2Q17 compared to fiscal 2Q16.

The company’s gross profit margin expanded by 40 basis points, and its income from operations as a percentage of total revenue narrowed by 550 basis points in fiscal 2Q17 compared to fiscal 2Q16.

Its net income and EPS (earnings per share) fell to $160.9 million and $0.95, respectively, in fiscal 2Q17 compared to $193.1 million and $1.01, respectively, in fiscal 2Q16.

Michael Kors’s cash and cash equivalents fell 73.4%, and its inventories rose 27.2% in fiscal 2Q17 compared to fiscal 4Q16. Its current ratio fell to 1.6x, and its debt-to-equity ratio rose to 0.64x in fiscal 2Q17 compared to a current ratio and a debt-to-equity ratio of 3.8x and 0.28x, respectively, in fiscal 4Q16.

During fiscal 2Q17, KORS repurchased 5,019,083 of its common shares worth ~$250.0 million in open market transactions.

Projections

Michael Kors (KORS) has made the following projections for fiscal 3Q17:

  • total revenue in the range of ~$1.37 billion–$1.38 billion
  • operating margin of ~25.0%
  • EPS in the range of $1.61–$1.65
  • tax rate of ~21%

The company has made the following projections for fiscal 2017:

  • expected total revenue of ~$4.6 billion
  • non-GAAP[1. generally accepted accounting principles] operating margin of ~20.7%, which excludes the one-time acquisition-related costs
  • non-GAAP EPS in the range of $4.37–$4.43
  • GAAP EPS in the range of $4.32–$4.38
  • tax rate of ~21%

Next, we’ll look at Apple (AAPL).

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