Wells Fargo: Michael Kors Holdings Ltd Investor Exit Could Cut Conflict Of Interest

Courtesy of Benzinga.

Michael Kors Holdings Ltd (NYSE: KORS) getting dumped by two founding investors could be a sign of a slowdown. But it also may provide critical independence in acquiring control of Kors-branded stores in China.

The apparel retailer said Thursday that Lawrence Stroll and Silas Chou's Sportswear Holdings will sell their remaining six percent stake in the company and resign from its board.

But the pair's Far East Holdings Ltd. continues to own an interest in the Kors license in China, where the relatively small number of stores is growing rapidly. Others with a stake in the license include founder Michael Kors, and Chief Executive John Idol.

"At some point Kors will repurchase the license, and with Stroll and Chou no longer on the board, it seems less likely the price paid will be too high," Wells Fargo's Paul Lejuez said in a research note Friday maintaining a Market Perform rating.

Moreover, the two former directors have sold larger stakes in Kors on several occasions in the past couple of years, and Lejuez said the shares have since performed well.

Despite the potential upside, Lejuez said that Stroll and Chou's departure "may indicate something about their view of the company's longer-term prospects."

Indeed, Barclays' Joan Payson said the move supports her thesis that "the business is approaching a near-term slowdown," and could signal a risk to earnings forecasts.

Payson, who doesn't see the China license acquisition happening until at least four years, maintains a Under Weight rating on Kors and target of $74.

Michael Kors traded recently at $76.75, down four percent.

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