Michael Kors isn't doing as great as it seems

Michael Kors reported better than expected revenue, sending the shares soaring Thursday.

But investors buying the stock today may be overlooking some lingering problems. Despite being the coolest brand on the market when it went public in 2011, Michael Kors is now plagued by criticism that it grew too fast.

The sales growth reported today comes from new store openings, but sales at stores open at least a year — a key metric for retailers — declined 9.5% in the most recent quarter. That marks six quarters of deceleration.

Even after gains today, the brand’s shares have fallen 38% in the past six months.

Despite the risk of overexpansion, Michael Kors is continuing to build new boutiques and outlet stores. The outlet stores, which sell Michael Kors bags, clothing, and accessories for a fraction of the price, made the luxury products seem less premium and desirable to American customers.

“As the brand has become more ubiquitous and worn by everything, the value of self-identification with the label has diminished. Compounding this, the availability of Kors products at discount or in outlets further eroded perception,” Brian Buchwald, CEO of Bomoda, a consumer intelligence firm, told Business Insider.

And China isn’t looking so great either.

“The slowdown in China and Hong Kong has pushed the Chinese consumer even more fully abroad to purchase,” Buchwald said. “With the US dollar at high levels, the preferred paths to cheaper purchase are Europe, Japan, etc. For a brand so tied to the American culture, this is a challenge for Kors.”

Buchwald surveyed 2,200 Chinese consumers on their favourite luxury brands and said Kors scored near the bottom, losing out to legacy brands like Chanel and Louis Vuitton.

Baird Michael Kors graphBaird Equity ResearchThis chart shows how Michael Kors’ popularity has been declining.

Buchwald emphasised that Michael Kors is a great brand — just not one that can sustain more growth.

JPMorgan analysts note that Michael Kors’ future is selling more shoes and clothing, and focusing less on bags.

“Michael Kors is still a well-loved brand and their marketing has been very effective,” Buchwald said. “(The company has) hit a plateau, and they’re going to have to reengineer to move past the plateau.”

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