Wall Street shunned Michael Kors stock on Monday, blaming discounts and smaller profit per item. But the discounted stock could be an opportunity for investors. Bobbi Rebell reports.
Michael Kors latest earnings report got panned by investors. The high profile designer's company suddenly finding itself out of fashion on Wall Street. Kors stock was the biggest decliner in the S&P 500. Shares had risen 19 percent in the past year. Kors did report higher than expected earnings, and raised its outlook for earnings and revenues. But investors focused on margins and discounting- Piper Jaffray's Erinn Murphy: (AUDIO SOUNDBITE) ERINN MURPHY, VICE PRESIDENT & SENIOR RESEARCH ANALYST, PIPER JAFFRAY (ENGLISH) SPEAKING: "The markdown rate during the quarter was a little bit higher so that did pressure gross margin in part at retail. That being said, it doesn't seem like it's been anything too dissimilar from what you are seeing in the space. So I think they still remain well ahead of their peer group." One way they do that- being strategic in the way they discount. Thomson Reuters Director of Consumer Research Jharonne Martis : SOUNDBITE: JHARONNE MARTIS, DIRECTOR OF CONSUMER RESEARCH, THOMSON REUTERS: "They know that the high-end consumer is willing to pay over $500 for a bag so they barely offered any discounting there. However when it comes to the middle class consumer, they know that they have to offer a discount in order to lure them into the stores." REPORTER BRIDGE: BOBBI REBELL, REUTERS CORRESPONDENT (ENGLISH) SAYING: "But the fact that Kors needs to offer those discounts is a real concern. Sales are cooling. North American sales were up 19 percent. That's still down from 25 percent a year ago." Kors is also investing heavily in its existing stores- and building new ones- focusing on overseas expansion- especially in lucrative Asian markets. SOUNDBITE: JHARONNE MARTIS, DIRECTOR OF CONSUMER RESEARCH, THOMSON REUTERS: "Kors just recently expanded over the past year in Asia and the Asian consumer is considered the #1 luxury consumer. This bodes well for the company especially since they just opened up their flagship store in Shanghai. And what Wall Street is failing to see is that those numbers were not baked into today's results." And it's not just Asia - Total sales in Europe surged 125%. (AUDIO SOUNDBITE) ERINN MURPHY, VICE PRESIDENT & SENIOR RESEARCH ANALYST, PIPER JAFFRAY (ENGLISH) SPEAKING: "It is truly global. It's not just about the U.S. It's not just about the U.S. handbag business it's really a much broader you know kind of multi category growth that is being fueled by the company. So I feel very comfortable with the direction of the story at this point." Kors continues to stay well ahead of struggling rival Coach, which reports Tuesday. Management there has said a turnaround will take around five years.