This Is One of the Best Growth Stories Around

"We are a rapidly growing..." These are the first five words in the Overview section of Michael Kors' (KORS) most recent 10-Q. Considering anything close to those words is nearly impossible to find these days, especially in retail, it is an incredibly powerful statement.

A growing brand
Michael Kors has been around for more than 30 years. This apparel and accessories company with a focus on women's handbags and small leather goods is rapidly growing its brand throughout the world.

Currently, Michael Kors has 249 retail stores in the United States and 79 retail locations throughout Europe and Japan. It has a presence in 85 countries. Michael Kors also generates wholesale sales through 2,214 department and specialty stores in North America, and 1,034 department and specialty stores internationally. Additionally, Michael Kors has a revenue stream through licensing, which will be covered below.

Michael Kors is predicting that its brand will grow fast. A lot of companies make this kind of prediction as confidently as a heavyweight contender entering a title fight, but only certain companies (and only some fighters) have what it takes to back up that confidence with results. Michael Kors fits into this category.

Exceptional growth
During the the first quarter alone, total revenue skyrocketed 54.5% to $640.9 million year over year. The growth was seen in non-comp, comp, retail, wholesale, and licensing. In other words, when you look at Michael Kors, you see growth everywhere.

Net retail sales jumped 51.5% to $325.7 million, with comps improving 27.3% thanks to an increase in sales of the company's accessories product line. Net wholesale sales enjoyed a 59.3% bump to $290.6 million thanks to increased sales of accessories and footwear. Licensing revenue moved 40.7% higher to $24.6 million, with strength in watches and eyewear.

In North America, comps improved 25%, with luxury accessories, ready-to-wear items, and in-store experiences playing big roles. American consumers tend to enjoy the jet-setting atmosphere. Overall, North American sales jumped 50%, mostly due to a successful conversion of shop-in-shops in department stores. In Europe, Michael Kors saw a 144% increase, with improved brand awareness as the primary catalyst.

For fiscal year 2014, Michael Kors expects total revenue of $2.8 billion-$2.9 billion, and diluted EPS of $2.67-$2.69. These would both be considerable improvements. Below is an example of the company's consistent growth on both the top and bottom line.

METRIC

2009

2010

2011

2012

2013

Revenue (in millions)

$397

$508

$803

$1,302

$2,182

Diluted EPS

N/A

N/A

$0.40

$0.78

$1.97

Michael Kors has been stealing some market share from Coach (COH) recently, but Coach has been very consistent in its own right.

METRIC

2009

2010

2011

2012

2013

Revenue (in millions)

$3,230

$3,608

$4,159

$4,763

$5,075

Diluted EPS

$1.91

$2.33

$2.92

$3.53

$3.61

Ralph Lauren (RL) is another player in the space, and it has also been consistent on the top and bottom line annually.

METRIC

2009

2010

2011

2012

2013

Revenue (in millions)

$5,019

$4,979

$5,660

$6,860

$6,945

Diluted EPS

$4.01

$4.73

$5.75

$7.13

$8.00

If you look at some key metrics below, you will see that Michael Kors might not be the most appealing of the group. It's the most expensive, and it doesn't pay any dividends.

METRIC

Trailing P/E

Net Margin

ROE

Dividend Yield

Short Position

Michael Kors

34

18.85%

52.29%

None

3.10%

Ralph Lauren

21

10.80%

20.17%

0.90%

1.60%

Coach

15

20.38%

47.00%

2.50%

5.70%

Despite the high valuation and no dividend payment, Michael Kors is very good at turning revenue and investor dollars into profit. And the improved brand recognition is the key growth driver. Investors are willing to pay up for this growth.

The bottom line
It's difficult to be bullish on stocks in the current economic environment, along with the broader market trading near all-time highs. Michael Kors is one of the few exceptions to the rule. This is one of the fastest growing brands in the world, and considering the brand's momentum and increased exposure, that type of growth is likely to continue. Despite Micheal Kors trading at a higher multiple than Ralph Lauren and Coach, the valuation looks to be justifiable. If the stock suffers at any point, consider adding to your position.

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