3 Reasons to Buy Michael Kors

Sometimes, you have to go through your closet, and pull out all those tattered shirts, covered in tomato sauce and grass stains in order to make room for some nice new kit. Here's a hint: That's a metaphor for keeping your portfolio running like the well-oiled retirement machine it's meant to be. There are some excellent stocks to be had, but when a great new one comes along, you have to find room. Luxury designer Michael Kors (NYS: KORS) deserves some space for three clear reasons.

Brand strength
When we talk about retail goods, we all want to own the best and brightest. Warren Buffett famously said, "If you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done." That's not just because Coke is a well-run company, it's because Coke is synonymous with soda. That's the power of good branding.

But strong brands often show up on the financial statements, as well. Look at a strong brand like watch manufacturer Fossil (NAS: FOSL) , which has the ability to pull down large gross margins. Fossil has a partnership with Kors to manufacture Kors-branded watches, and in its first quarter this year, Fossil recorded a 56% gross margin. That's much better than even a strong brand like Kenneth Cole (NYS: KCP) , which only managed a 40% gross margin in its last quarter.


Kors blew them both out of the water with a 58% gross margin last year. The brand strength that comes along with that means that we're talking about a Buffett-style company here, one that simply can't be pushed out of the way. That's a good reason to be interested in the stock, to start with.

Revenue growth
Strong margins are great, but not if sales are stagnant. There are some great brands out there that no one is interested in investing in because the companies aren't growing. Kors is not that kind of company. Last quarter, revenue increased 58% to $380 million. Same-store sales jumped 36% over the same period. In short, the company is growing by leaps and bounds.

Even competitors like handbag maker Coach (NYS: COH) and jeans manufacturer True Religion (NAS: TRLG) aren't growing at the same speed as Kors. Coach has had a fantastic run recently, while True Religion has seen its stock price drop over 20% in 2012. Last year both Coach and True Religion only grew revenue 15%. Kors' growth obviously puts them both to shame, and it wasn't just a flash in the pan. Since 2008, Kors has grown revenue by over 300%. This isn't just a nice new piece for your wardrobe; it's a nice jacket that gets better with age.

Leadership
All of these things would be worthless if the folks in charge were numpties. Luckily for investors, that's not even close to being the case. Founder Michael Kors is still well-integrated with the company, and owns about 6.5% of the business. My colleague Austin Smith recently reported on how Kors insiders, including Kors himself, largely held onto shares even though the insider lock-out period ended. This is a great sign of faith from the owners, and should give investors a lot of confidence.

Apart from the founder, the current CEO John Idol has great things in mind for the company. He has stated that he's interested in growing the business with a five-year plan in mind, not a next-quarter view. In addition to his foresight, he's got a great history in the industry. Before working for Kors, he was at Ralph Lauren and Donna Karan. The combination of a strong founder and a strong CEO gives me a lot of faith in the future of Michael Kors.

The bottom line
Michael Kors stands out from the luxury crowd by virtue of having a great brand, a great business, and strong leadership. This is a stock that a lot of people should consider for their portfolios. If you're in the market for a strong, growing retailer, and it fits in with the rest of your stocks, I'd seriously consider doing the rest of the research required to buy this one.

Michael Kors has what it takes to go the distance, and I think that it's one of the best retail stocks out there. But, even with all it has going for it, it's still not the Fool's pick for the top stock for 2012. This company has great branding and leadership, too. It's the kind of company that's already done extremely well, but still has an opportunity for exponential growth. This is a great stock to be in on, and you can learn all about in this free report.

The article 3 Reasons to Buy Michael Kors originally appeared on Fool.com.

Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Fossil. Motley Fool newsletter services have recommended buying shares of Coach and Fossil. Motley Fool newsletter services have recommended shorting Fossil. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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