Tiffany & Co. (NYSE:TIF) and Michael Kors Holdings Ltd (NYSE:KORS) recently released very strong quarterly earnings reports. As the U.S. stock market flourishes and China shows no signs of a big slowdown, we look at a few luxury retail stocks to determine if the future is as bright as the recent quarterly results.
Strong Quarterly Reports
Tiffany & Co. (NYSE:TIF) engages in the design, manufacture and retail of jewelry. The company currently operates 275 stores worldwide. Tiffany reported a strong quarter with worldwide net sales increasing 9% and net earnings increasing 3%. Of note, the company grew sales in Asia-Pacific by 15% as same-store sales grew 9%. Especially impressive was European sales growing by 6% despite the nasty recession currently ravaging much of the continent. The company reaffirmed its 2013 outlook with sales growing in the mid-single digits.
Michael Kors Holdings Ltd (NYSE:KORS) engages in the design, marketing, distribution and retail of branded womens apparel and accessories and mens apparel. The company currently operates 191 retail stores and has licensing agreements with 2,677 department stores worldwide. Gross profit increased by 62.6% and the company expanded operating margins to 26% from 20.2% in the prior year. The company was also incredibly successful in the tough European market, growing sales by nearly 100% with same-store sales growing by 63%. The company expects same-store sales to increase 15-20% for fiscal year 2014.
Valuations
Tiffany & Co. (NYSE:TIF) currently trades at a P/E of 24.02 and is trading at 22 times projected 2014 earnings. The company also offers a dividend yield of 1.74% and a five-year dividend growth rate of 17.78%. Michael Kors Holdings Ltd (NYSE:KORS)currently trades at a P/E of 32.46 and at 25.71 times analyst estimates of 2014 earnings. The company does not currently pay a dividend; however, at current growth levels, the company should continue to invest cash in its operations rather than return it to shareholders.
Another Luxury Play?
Coach (NYSE:COH) designs, markets and distributes handbags, accessories, wearables, footwear, jewelry, sunwear, travel bags, watches, and fragrances for men and women. The company operates 354 retail and 169 factory stores in North America and 310 department stores shop-in-shops in Asia. In the most recent quarter, sales increased 7% and EPS was up 10%. The company also announced that it would be raising its dividend by 12.5%. Coach currently trades at a P/E of 15.74 and at 14.2 times 2014 estimated earnings. Coach has a 2.32% dividend yield and a strong history of dividend growth.
Wrapping it Up
While Coach appears to have the best valuation, the company’s brand image has been slipping and it is the only stock discussed not trading near its 52-week high. Coach has been closing retail stores and opening more factory stores. During the most recent quarter, the company opened one new retail store, closed five and opened two factory stores in North America. The increase of factory stores could negatively impact future margins, and the result may already be visible. Operating margins decreased over 1% in the most recent quarter. Until Coach can reinvent itself and wow customers again, I would avoid the stock.
