Michael Kors, IPO Runway Star
Amanda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
By all accounts, last year was a bit of a bust for IPOs. A few of the big names that didn’t live up to the hype include Groupon, Zipcar and Zillow. The year wasn’t a total loss, however. While the flashier offerings hogged the spotlight, many other companies went public as well -- with better results. One in particular was Michael Kors Holdings (NYSE: KORS), which sold 47 million shares at $20 each, higher than the expected $17-$19 price. The sale quickly raised nearly $1 billion for the insiders who sold stock, increasing the company’s value to $3.8 billion.
It is perhaps unfair to compare Michael Kors with some of the better-known IPO flame-outs, which were often young companies without a proven track record. Kors’ success has been built up over 30 years and, as many analysts have pointed out, the company is currently growing by leaps and bounds. Sales increased almost 60% in 2011, creating a huge surge in its net income. Where discount and department stores have struggled during the recession, high-end retailers have enjoyed a renaissance of sorts, as those with discretionary wealth spend up a storm at their stores. Kors has certainly proven that despite a sulky economy, there is a large contingent of shoppers who have no compunction about purchasing a $600 handbag.
The increase in net income has helped expansion efforts, with nearly 70 new stores since 2010. Analysts note that Michael Kors’ growth is surpassing two other luxury retail chains, as well. Polo Ralph Lauren (NYSE: RL), whose own IPO in 1997 brought in $882 million, has lately been added to Goldman Sachs Conviction Buy list due to its expansion into Asian markets; and Coach, Inc. (NYSE: COH) is currently expanding into the Chinese market. As a whole, the sector was able to sustain healthy holiday sales without resorting to discounts. One month after its initial offering, ISI Group raised the company’s price target to $33, at least partly based on their strong performance during the holiday season.
This sector has all the makings of an investor’s dream, as it sells high-priced merchandise to people who have boatloads of money and aren’t afraid to spend it. And here’s the best part: slumping economies and high unemployment don’t have a negative effect on their sales. If anything, the sector appears to be thriving as never before.
While it seems that any of these retailers would be a desirable addition to anyone’s portfolio, Michael Kors is particularly attractive. Phenomenal growth, a well-established company and healthy income in a sector that is predicted to grow by 10% this year is nothing to sneeze at. Right now, the stock price is a steal at under $29 per share, compared with Coach’s $64.50 and Ralph Lauren’s $145.70. Bargains are scarce in this sector, so grab yours while you can.
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