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Michael Kors Turnaround Story Gets A New Plot Twist After Q1 Comps Miss

Michael Kors Turnaround Story Gets A New Plot Twist After Q1 Comps Miss - Michael Kors Holdings Limited NYSE:KORS, Coach, Inc. NYSE:COH

On Wednesday morning, Michael Kors Holding Ltd KORS reported Q1 EPS of $0.88 vs. $0.74 estimates and revenue of $987.9 million vs. analyst estimates of $953.0 million. Although Kors beat both revenue and EPS estimates, shares fell due to weak forecasts and same-store sales.

Goldman Sach's Lindsay Mann raised Michael Kors' 12-month price target from $50 to $52 to reflect the Q1 beat, but maintained its Neutral rating.

Lacking Visibility

"The KORS investment story today is murkier than before with surprise pressure materializing in US and EU stores," stated Mann. Michael Kors' wholesale business has proved itself unpredictable "as KORS both destocks the channel and significantly reduces promotions" while planning to no longer participate in Friends and Family or extensive coupon events.

Related Link: Citi Says It May Be Tougher Than Michael Kors Expects To Improve North American Comps

While the reduction of promotions and coupons would strengthen brand health according to Mann, the analyst expected a 10-20 percent drag to sell-through as a result. Mann created the 10-20 percent slowdown expectation by analyzing Coach's COH recent similar experience.

"All in, lack of visibility at this stage leaves us on the sidelines, despite a compelling valuation (10X NTM P/E and 8% free-cash yield) and our view that 2Q sales and EPS guidance looks beatable," stated Mann.

Finally, the analyst did admit Michael Kor's aggressive stock buybacks could "cushion" EPS in the future.

DateFirmActionFromTo
Aug 2016Goldman SachsMaintainsNeutral
Apr 2016Piper JaffrayUpgradesNeutralOverweight
Mar 2016Jyske BankInitiates Coverage onBuy

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