Did Deutsche Bank Just Call The Bottom In Michael Kors Shares?

Courtesy of Benzinga.

With Michael Kors Holdings Ltd (NYSE: KORS) set to report earnings on Tuesday, February 2, before the opening bell, a handful of sell-side analysts have recently been out with 3Q expectation previews.

One analyst at Deutsche Bank, Dave Weiner, seemed to lean toward calling a bottom in the stock.

In the title of a Monday morning research note, Weiner ventured to speculate, “Near-term macro remains pressured, but KORS stock finding a bottom?”

Three Concerns Already Priced In

The Deutsche Bank analyst argued “a lot of bad news” has recently been priced into shares of the handbag maker. According to Weiner, investors have sidelined Michael Kors shares given:

• a slowdown in North America;
• pressure related to tourism; and,
• lower average unit sales which stemmed from the sale of smaller-sized handbags.

Related Link: Handbag Category “Somewhat Slow” Post-Christmas

4 Potential Catalysts To Look Out For

Weiner continued, however, that catalysts for the company and stock “should re-emerge” during the first half of 2016.

He noted the following positives:

• new products and a Fall product investor preview next week;
• promotions which have normalized despite being up on a year-over-year basis;
• the SG&A ramp which “should cycle in ’16”; and,
• strong trends in China and interest in bringing that business in house.

Expectations For Q3

Weiner has modeled for Michael Kors to report a third-quarter improvement in overall same-store sales to a decline of 5 percent. He is expecting third-quarter earnings of $1.47, compared to the current analyst consensus estimate of $1.46.

“More importantly for the stock, management needs to indicate that positive comps are forthcoming, especially as Coach Inc (NYSE: COH) expects its own comps to inflect in the Apr.-Jun. quarter,” Weiner said.

Despite promotions, which were likely high over the quarter, Weiner has said Michael Kors’ gross margins will be in line.

Weiner and Deutsche Bank maintain a Buy rating and $50 price target on shares of Michael Kors heading into the third-quarter print.

The company, based on historical data from Benzinga, normally reports earnings around 6:55 a.m. EST.

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