Strong appetite for luxury spurs Michael Kors sales

A model presents a creation at the Michael Kors Autumn/Winter 2013 collection during New York Fashion Week on Feb 13, 2013. Michael Kors Holdings Ltd reported a higher-than-expected 40 per cent jump in quarterly revenue and said it would open about 1
A model presents a creation at the Michael Kors Autumn/Winter 2013 collection during New York Fashion Week on Feb 13, 2013. Michael Kors Holdings Ltd reported a higher-than-expected 40 per cent jump in quarterly revenue and said it would open about 100 stores in 2014 as demand for luxury goods such as its trendy handbags and watches shows no sign of fading. -- FILE PHOTO: REUTERS

(REUTERS) - Michael Kors Holdings Ltd reported a higher-than-expected 40 per cent jump in quarterly revenue and said it would open about 100 stores in 2014 as demand for luxury goods such as its trendy handbags and watches shows no sign of fading.

The company's shares, which have more than tripled since it went public in 2011, rose more than 6 per cent to a life high.

Signs of economic recovery in the United States (US) and Europe have increased demand for affordable luxury items, helping companies such as Michael Kors, Fifth & Pacific Cos Inc's kate spade, Fossil Group Inc, Estee Lauder Cos Inc and privately owned Tory Burch.

Men are also spending more on luxury, analysts have said, encouraging companies to step up investments.

Michael Kors, controlled by fashion designer and former Project Runway TV show judge Michael Kors, is one of the fastest-growing companies in the luxury and so-called "affordable luxury" segments.

The company's handbags sell for US$200 (S$250) to US$3,000, while watches are priced at between US$150 and US$550.

"By driving a frequent flow of new and innovative products through its own stores and wholesale shops, the company is generating consumer excitement in a way we've never seen in the luxury accessories category," said Mr Omar Saad, an analyst at research firm ISI Group said on Tuesday.

Michael Kors' quarterly sales have risen by at least 40 per cent every quarter since the company went public. The company's apparel and accessories have been spotted on First Lady Michelle Obama and celebrities such as Jennifer Lopez.

Under its affordable luxury brand, MICHAEL Michael Kors, the company offers products similar to those at its high-end brand, KORS Michael Kors, but at a cheaper price.

Michael Kors said it expected to earn 83 to 85 US cents per share in the current quarter, on revenue of US$845 million to US$855 million.

Analysts on average expect a profit of 85 US cents per share on revenue of US$841.2 million.

Piper Jaffray analyst Erinn Murphy said she thinks the company's guidance for the holiday season is conservative.

"I think the brand has a lot of key product catalyst that should help them during the holiday season," Ms Murphy said. " Fragrance, jewellery, watches and handbags are all going to be very strong gift-giving items in the holiday season."

The company has been growing at a blistering pace and is aggressively expanding in the US and Europe.

Michael Kors has also increased its presence in department stores, including Macy's and Nordstrom.

The company said on Tuesday it would continue to expand, spend on building its brand and employ more people even if it had to sacrifice margins moderately.

"We would rather invest in the company over the next three-plus years, even if that meant the operating margin declined slightly," chief executive John Idol said in a post-earnings conference call.

Kors' success has hit Coach Inc particularly hard.

The rival company, known for its Poppy handbags, reported a 7 per cent fall in same-store sales in North America in the latest quarter.

Michael Kors' net income jumped 49 per cent to US$145.8 million, or 71 US cents per share, in the second quarter ended Sept 28 from US$97.8 million, or 49 US cents per share, a year earlier. Analysts on average had expected 68 US cents, according to Thomson Reuters I/B/E/S.

Revenue rose 40 per cent to US$740.3 million, beating the average analyst estimate of US$726 million.

Comparable-store sales in North America, the company's largest market, rose 21 per cent.

Total sales in North America rose 31 per cent to US$618.3 million. Sales in Europe more than doubled to US$114 million.

The company raised US$944 million in its 2011 initial public offering in one of the biggest-ever listings by a US fashion company.

The company now has a market capitalisation of more than US$15 billion, about the same as industry stalwart Ralph Lauren Corp .

Michael Kors shares were up 6 per cent at US$79.31 at midday after hitting a high of US$79.90 on the New York Stock Exchange.

The stock had risen about 50 per cent this year up to Monday's close.