My Favorite Pick Among the Luxury Brand Stocks

Success in the retail sector is all about image, marketing, the brand, and having the right people to execute on the strategy.

J. C. Penney Company, Inc. (NYSE/JCP) is a perfect example of how not to operate in the retail sector and, as such, the company is failing.

Aeropostale, Inc. (NYSE/ARO) and Abercrombie & Fitch Co. (NYSE/ANF) are two other retailers that have failed to adapt to the changing retail sector amid competition.

In the luxury end of the retail sector, Coach, Inc. (NYSE/COH) continues to struggle with sales. Part of this may have to do with some of the key metrics I mentioned earlier, but a major factor has definitely been the emergence of Michael Kors Holdings Limited (NASDAQ/KORS). As many of you will already know, I favor Michael Kors as the top player in the luxury retail sector.

While Coach and Michael Kors both are heavily operating in the sale of women’s accessories in the retail sector, the big difference, in my view, has been the successful move of Michael Kors into men’s and women’s apparel, which is found in many of the top-end department stores, as well as company stores. From pants, shirts, and suits to belts and coats, Michael Kors is quickly becoming a sought-after brand for fashion lovers in the retail sector.

The chart of Michael Kors below shows the steady upward trend in the stock since the beginning of 2012. There is some congestion and resistance at this time (as shown by the horizontal blue line near the top of the chart), but we are seeing a bullish ascending triangle and a possible upside breakout on the horizon, based on my technical analysis.

Chart courtesy of www.StockCharts.com

The company’s fundamentals also support the success story. Michael Kors has consistently been able to deliver strong results to investors, including beating Thomson Financial earnings-per-share (EPS) estimates in each of the past four quarters by an average of 32.48%.

In its fiscal second-quarter earnings report (released on Tuesday), Michael Kors reported earnings of $0.71 per diluted share, $0.03 above the consensus estimate. Revenue growth was strong at 38.9% year-over-year to $740.3 million compared to the consensus estimate of $725.91 million.

Even more spectacular was the sizzling 22.9% surge in the key same store sales readings. Growth was strong across its regions, with sales jumping 31% year-over-year in North America and an impressive 101% in Europe. Same store sales spiked 45% in Europe. In China, the company also continues to deliver excellent sales.

The only concern is a mixed view of the fiscal third quarter, which is not surprising. So while the company may feel some bumps ahead in the retail sector, the prospects look good, as I feel Michael Kors will continue to be the “Best of Breed” among the luxury brand stocks, as long as it can continue to deliver on its strong execution.

Read about a low-cost restaurant stock I like in “The McDonald’s Alternative for Small-Cap Investors.”