Vince or Michael Kors: Which Should Dress Your Portfolio?
Dec 18th 2013 5:30PM
Updated Dec 18th 2013 5:32PM
Vince Holding burst onto the stock market scene on Nov. 22 and it has risen over 59% to-date. Its popularity in the market has resulted in comparisons to Michael Kors , who has risen over 239% since going public in December 2011. The brands compete within the luxury goods space, so let's compare the two and find out which stock could provide the highest returns for its investors.
The luxury brands
Vince is a contemporary-apparel brand known for its modern style and everyday luxury essentials. It has been expanding its product offerings to gain share in more spaces while also adding distribution partners to reach more markets. Vince remains focused on adding locations within the United States, but it is also looking to Asia for additional growth.
Michael Kors is known as the "affordable luxury" brand and it is home to one of the most fashionable lines of women's and men's apparel and accessories. The most consumer attention has been placed on its watches and handbags, but it has been gaining ground in clothing, footwear, sunglasses, and other categories. Its largest market is the United States, but it has been expanding rapidly throughout China and Europe as well. There are not many brands that cater to the tastes of both women and men, but Michael Kors has found the recipe for success.
Vince has not reported earnings since going public, but its prospectus did contain financials for the last three fiscal years. Here is what the company has accomplished in the first six months of 2013 compared to the first six months of 2012:
|Revenue||$114.7 million||$90.5 million|
|Net Income||$2.4 million||$1.2 million|
|Comp.-Store Sales||31.7% growth||13.9% growth|
Net income has doubled and revenue has risen 26.7% year-over-year, as comparable-store sales have been much stronger than expected. The company projects third-quarter revenue growing 10.8%-11.9%, net income rising 12.7%-16.7%, and gross margin expanding 290-340 basis points. Vince has shown continued strength since 2010 and I believe it is gearing up for an explosive 2014.
Michael Kors released its most recent report on Nov. 5 and the company exceeded analysts' expectations on both the top and bottom lines. Here's an overview of the results:
|Earnings Per Share||$0.71||$0.68|
|Revenue||$740.30 million||$725.91 million|
Earnings per share grew 44.9% and revenue rose 38.9% year-over-year, with comparable-store sales rising 22.9%. Gross profit increased 42.4% to $449.9 million as the company's gross margin expanded 150 basis points to 60.8%. For the third quarter, the company projects earnings growth of 29.7%-32.8%, revenue growth of 32.7%-34.3%, and comparable-store sales growth of 15%-20%. Michael Kors has continued its rise as the new global luxury powerhouse and I do not think the growth is even close to slowing down.
|Market Cap||$1.5 billion||$16.7 billion|
|Company Owned Stores||27||352|
Michael Kors dominates in brand awareness, total store count, and gross margin, and the projections going forward favor Kors as well. Over the next five years, Michael Kors expects to grow its store count to over 700 globally; this will help the company take advantage of the global demand it is experiencing. Vince, on the other hand, expects to grow from 27 stores to 40 by 2016. I like that Vince is taking its growth slowly, as it needs to be sure that demand supports continued growth; if comparable-store sales drop off and the new stores do not impact sales by as much as expected, expansion will need to come to a halt in order to put more focus on marketing. With this said, if Vince can deliver on 40 locations and grow revenue at existing locations, its total sales could easily double by 2016.
And the winner is...
After reviewing product offerings, recent earnings, and other metrics, the winner of this match-up is Michael Kors. I believe the company's products and their affordability produce a stronger brand since Michael Kors can reach more people. Vince has great potential to gain share in the high-end luxury market, but I believe it has a lot of work to do to get to the top. If I were placing an investment today, I would go with the proven champion, Michael Kors.
The Foolish bottom line
The luxury goods market will account for over $318 billion in sales in 2013 and the trend is pointing upwards for the next several years. This growth will directly benefit the brands within this industry, like Michael Kors and Vince. Michael Kors is my favorite company in the industry due to its immense growth over the last two years and the expansion plans it has in place. Vince should be kept on your radar, and if it can deliver strong earnings in its first public release, consider it for a possible stake.
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The article Vince or Michael Kors: Which Should Dress Your Portfolio? originally appeared on Fool.com.Joseph Solitro owns shares of MICHAEL KORS HOLDINGS LTD COM NPV. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.