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Michael Kors Scores With Strong Q2, But What's The Deal With That Guidance?

Michael Kors Holdings Ltd (NYSE: KORS) reported better-than-expected second-quarter earnings Monday, with the retailer saying it's in-line with its Runway 2020 strategic plan.

Kors shares hit a new 52-week high of $55.01 and were trading higher by more than 13 percent Monday morning.

The fashion brand's guidance for the fiscal third quarter is "perplexing" after a "strong" Q2, as it implies a notable comp deceleration and margin pressure, Buckingham Research Group's Scott Krasik said in a Monday note. Kors' guidance for the fiscal third quarter is "incomprehensible" and requires additional commentary, Krasik said. (See Krasik's track record here.)

Buckingham maintains a Neutral rating on Michael Kors' stock with an unchanged $52 price target.

Kors' outlook implies that its fashion brand still resonates with consumers across the world, but the number of consumers who will pay full price for the brand is smaller than it was in the past, the analyst said. Overall growth for the fashion company will prove to be a "challenge" given the "tepid category demand" and overexposure to the wholesale aspect of the business, Krasik said.

The guidance also implies implies a deceleration in comparable sales at a high single-digit rate, while operating margins were guided 200 basis points below what the analyst had expected.

Buckingham may turn more constructive on the stock when "we get confidence that sales and margins in FY18 represent trough levels," Krasik said.

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