Michael Kors (KORS) has been called “the unshortable stock,” something that still holds true today. In fact, with the company destroying Coach (COH), firing on all cylinders and continually growing revenue, we believe KORS will be a $100 stock within the next two years. Considering that the stock is above $60 a share and up +7.8% today as of writing, there’s plenty to like. But like any company, no matter how amazing they may seem, concerns still exist.
Starting in FY14 (i.e. in April) the company starts to use excess cash to buy back stock. In small amounts at first – about $100mm in year 1 – but ultimately building to $400mm by year 3 to prevent its return on investment from rolling over due to too much cash. The company has been spending a lot of cash lately and is also swooping in and buying primo real estate for store locations that don’t come cheap. Ready-to-wear margins could also come down as accessories make up more of the business and inventory buildup could pose a threat. Regardless, we like the stock and think KORS is one of the best names in retail.
