After a dismal release and a 25% drop in the price of shares over the last week, I still think KORS may have more room to tumble. The low price to ratio may lead some investors to believe KORS is a value, but I believe it may be a classic value trap.
Overall sales may be increasing but there are major caveats. Margins & comparable same store sales are down.
This is a reflection of luxury brand status deterioration. The ubiquity of KORS products is indicative of an over-saturated brand. The products are commonly owned by people in lower economic strata. In my view, this has caused KORS to enter the faux luxury category.
To increase incremental sales, KORS has offered deep discounts on their core luxury products (watches & purses). This negatively impacts the bottom line each quarter since margins take a hit. More importantly however, the long term growth prospects will wane if consumers begin to think KORS is no longer 'in', or if they no longer think of it as a luxury brand. Discounting a brand's flagship products is deleterious to the company's image and their long term profitability (see Coach, Abercrombie, countless others)