Top Retail Stock?

bby and kors

Merrill Lynch research report ......... Jan 8, 2015

Top 5 reasons to Buy KORS on recent pullback

#1: KORS still the winner in a promotional Holiday season
The 2014 Holiday selling season was marked by a highly promotional environment
across apparel & accessory categories. However, we believe KORS drove traffic for
its key wholesale partners and took share across channels (online, premium, midtier, off-price, full-price and outlet) as sell-throughs continued to stand out, helped by
select discounts (about 30% of KORS store at 25-50% off in Holiday period).

#2: KORS benefitting from move to in-house eCommerce
KORS eCom site moved in-house in Sept. (took over from Neiman Marcus). New
Omni-channel capabilities (including buy on-line, return to store) and better
marketing should support accelerated .com sales (up 70% in October) thru '15.

#3: Search trends and survey show strong brand momentum
KORS top 5 social media following vs. accessible and traditional luxury peers,
strong intent to buy from millennial consumers over the next 12 months (see the
Specialty Retail team’s handbag survey), and strong global and re-accelerating US
“Michael Kors” searches (coupled with healthy response to discounts) imply a
sequential acceleration in N.America same-store sales (vs. +10.8% comps in 2Q)

#4: Europe growth should continue to support sales upside
KORS is still underpenetrated in Europe vs. expectations to reach $1.5bn in sales
longer-term (from $400mn last year). Growing demand for accessible luxury in
Europe should favor KORS growth with execution supported by plans to relocate
KORS headquarters from Hong Kong to London (announced F2Q15).

#5: Valuation attractive + $1BB share repurchase program
KORS remains our top pick as shares now trade at just 14x our F16 (ends March)
estimate of $4.90 and 12x our F17 estimate of $5.65, a P/E that is well below a
potentially conservative 15-16% secular EPS growth rate outlook. Our $120 price
objective is supported by our discounted cash flow analysis (assumes 7% expected
return and 8X terminal value EBITDA multiple). Importantly, we believe KORS will
be active with its recently announced (Nov.) $1BB share repurchase program and
see gross margin benefits from increasing volumes with its key manufacturing
partners and diversifying its sourcing base out of higher cost China

Stock Data
Price  US$68.71
Price Objective  US$120.00
Date Established  31-Jul-2014
Investment Opinion  B-1-9
Volatility Risk  MEDIUM
52-Week Range  US$65.12-101.04
Mrkt Val / Shares Out (mn)  US$14,295 / 208.1
BofAML Ticker / Exchange  KORS / NYS
Bloomberg / Reuters  KORS US / KORS.N
ROE (2015E)  38.8%
Total Dbt to Cap (Jul-2014A)  NA
Est. 5-Yr EPS / DPS Growth  18.4% / NA

Merrill Lynch has 70% upside on KORS

Target.  TGT.

Relatively new CEO, the company recovering from the 2013 hack, and it is has eliminated its Canada foray.

It should benefit with a more healthy U.S. consumer,  as the months go along..