Michael Kors: Big Earnings Beat Good for Fossil, Bad for Coach?

Shares of Michael Kors Holdings (KORS) have gained 6.4% to $79.54 today, after reporting better than forecast earnings. That could be good news for Fossil (FOSL), but Coach (COH) could be in trouble.

Cassandra Giraldo for The Wall Street Journal

Reuters has the details on Michael Kors’ earnings:

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

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

Comparable-store sales in North America, the company’s largest market, rose 21 percent…

Michael Kors said it expected to earn 83-85 cents per share in the current quarter, on revenue of $845 million-$855 million. Analysts on average expect a profit of 85 cents per share on revenue of $841.2 million.

Kors’ results could be good news for Fossil, according to Citigroup’s Oliver Chen. He writes:

We are incrementally more confident in FOSL's European and North America wholesale growth given strong comments from KORS. We believe Europe watch growth continues to  outpace North America given awareness build and easier comparisons in Europe. At KORS, licensing segment experienced +65% growth on strength in luxury watches and jewelry with plans to rollout additional watch/jewelry shops in wholesale channel. KORS had 85 watch and jewelry shop-in-shops and can ultimately support 500 shop-in-shops worldwide. We remain excited by KORS jewelry, which is complementary to watches, and fashion execution remains top notch, in our view.

It’s definitely not good for Coach, however. Chen writes:

…we believe KORS is seizing opportunities where competitors are weaker much like it has done successfully in the dept store channel. (2) KORS is already looking to innovate in watches version 2.0 whereas COH has just relaunched this product to compete on a level playing field with current offerings: we est. watches are 15-25% of mix at KORS vs. less than 5% at COH. (3) KORS is seeing +DD traffic and +SD conversion with ticket staying flat which is outpacing flat to negative traffic concerns at COH and increased promotional factors; our call is that this sequential momentum will continue.

Shares of Fossil have gained 1.3% to $131.92 today, while Coach has gained 1.5% to $51.81.