Michael Kors Higher following results

Michael Kors’ beat and raise boosts shares of luxury retailers

Michael Kors to acquire Jimmy Choo PLC for $1.35B. See Stockwinners.com for stocks to buy, stocks to watch, stocks to follow

Shares of Michael Kors (KORS) jumped in Monday’s trading after the apparel and accessories maker gave better than expected guidance for the fiscal year after announcing top and bottom line results for its most recent quarter that topped consensus forecasts.

EARNINGS BEAT

Michael Kors reported second quarter earnings per share of $1.33 on revenue of $1.15B, handily beating analysts’ consensus estimates of 83c and $1.04B, respectively.

Second quarter comparable store sales decreased 2.5%, a smaller decline than the 4.7% drop analysts were expecting.

The company’s earnings also beat previous guidance calling for EPS of 80c-84c on revenue of $1.035B-$1.055B and comp sales down in the mid-single digits range.

Retail net sales for the quarter increased 8% to $645M, while wholesale net sales were up 2.5% to $263.6M on a constant currency basis. Licensing revenue fell 2.1% to $38M.

Looking ahead, Michael Kors raised its fiscal 2018 forecast and now sees EPS of $3.85-$3.95 on revenue of about $4.59B, against analysts’ estimates of $3.71 and $4.3B, respectively.

Comparable sales for the Michael Kors brand are expected to decline in the mid-single digits. In its last earnings report, Michael Kors forecast EPS of $3.62-$3.72 on revenue of $4.275B and SSS down in the mid-single digits.

Third quarter earnings per share, however, is expected to be $1.22-$1.27, well below analysts’ estimates of $1.50, but includes anticipated dilution from Jimmy Choo of about 4c.

Revenue is seen at $1.355B-$1.385B, including $105M-$110M of incremental Jimmy Choo revenue, above estimates of $1.29B. Comparable sales for the Michael Kors brand are expected to decline in the high-single digits.

TRANSITION YEAR

Michael Kors Chairman and Chief Executive Officer John Idol said in a statement that “Our second quarter results were better than expected, and we are pleased with our continued progress executing on our strategic plan, Runway 2020.” Idol, who reiterated that FY18 will be a “transition year” for the Michael Kors brand, said its efforts will ultimately drive improved financial performance.

On its earnings conference call, Idol reiterated that he believes Jimmy Choo can reach $1B in sales over time.

Additionally, Idol revealed a 360-degree marketing campaign with Google (GOOG, GOOGL) to support Access smartwatches “to further heighten demand.”

Idol said the fashion watch category is “challenging” and sees continued sales declines for the year in the total watch category. The company expects to close 40-50 stores in the fiscal year, more than its previous view of 20-40 stores. Kors previously announced plans to close 100-125 of its full-price retail stores over the next two years.

ANALYST COMMENTARY

Buckingham maintained its Neutral rating on Michael Kors and noted that Q3 guidance calls for “significant” deceleration and margin pressure. The firm said the Kors brand still has a loyal consumer base, albeit smaller than at its peak, that will pay full price for the brand, but that overall growth will be “a challenge.” The firm remains on the sidelines despite an “attractive” valuation, but would look to become more constructive when it is more confident that sales and margins represent “trough” levels.

Oppenheimer noted Kors’ “strong” quarter, and said the stock would be up more if not for the lower Q3 guidance.

PRICE ACTION

Shares of Michael Kors are up about 15% in early trading to $54.70. Shares are up nearly 28% year-to-date.

OTHERS TO WATCH

Others in the luxury accessory space trading higher include Vera Bradley (VRA), up 3%, and Coach, which recently changed its name to Tapestry (TPR), up 1%.


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Flex Pharma reports positive data on Lou Gehrig’s Disease

Flex Pharma reports ‘positive’ topline data from Phase 2 trial of FLX-787

Flex Pharma reports positive results. See Stockwinners.com for details

Flex Pharma (FLKS) announced positive topline data for FLX-787 from its randomized, double-blinded, placebo-controlled, cross-over Australian trial in ALS patients with frequent muscle cramps.

Amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s Disease, is a disease that affects parts of the nervous system that control voluntary muscle movements (the muscles that people move at will, like those of the arms and legs).

The study was terminated early to focus the company’s resources on the ongoing US Phase 2b ALS study.

In eight patients who completed the trial per protocol, FLX-787 demonstrated a statistically significant percentage reduction from baseline in both cramp-associated pain intensity and stiffness, relative to placebo control, based on daily patient assessments by Numerical Rating Scale.

Strong and consistent trends were demonstrated on multiple endpoints, including: percentage reduction in the number of cramps from baseline, increase in cramp free days from baseline, and improvements on both the Patient and Clinician Global Impression of Change.

FLX-787 was generally well tolerated.

In the patients completing both cross-over periods per protocol: FLX-787 showed a median 31% reduction in cramps from baseline versus 0.1% reduction for patients while on placebo control; Patients had a median of 4.4 cramp free days versus 0 for placebo control; Patients evaluated themselves as improved with FLX-787 treatment 50% of the time versus 12.5% with placebo control; and Clinicians blinded to treatments evaluated 50% of patients as improved with FLX-787 versus 0% for placebo control.

The company also analyzed the Period 1 and Period 2 results of all patients randomized in the trial and believes the cross-over results are not driven by a cross-over bias or unblinding effect.

FLKS closed at $3.32.


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Broadcom offers to buy Qualcomm for $155 billion

Broadcom proposes to acquire Qualcomm for $70 per share in cash and stock

Broadcom Limited (AVGO) announced a proposal to acquire all of the outstanding shares of Qualcomm (QCOM) for per share consideration of $70.00 in cash and stock.

Under Broadcom’s proposal, the $70.00 per share to be received by Qualcomm stockholders would consist of $60.00 in cash and $10.00 per share in Broadcom shares.

The Broadcom proposal stands whether Qualcomm’s pending acquisition of NXP Semiconductors (NXPI) is consummated on the currently disclosed terms of $110 per NXP share or the transaction is terminated.

The proposed transaction is valued at approximately $130B on a pro forma basis, including $25B of net debt, giving effect to Qualcomm’s pending acquisition of NXP on its currently disclosed terms.

Broadcom’s proposal was unanimously approved by its board. Broadcom said it is “prepared to engage immediately in discussions with Qualcomm to work toward a mutually acceptable definitive agreement and is ready to devote all necessary resources to finalize the necessary documentation on an expeditious basis.”

The proposed transaction will not be subject to any financing condition.

BofA Merrill Lynch, Citi, Deutsche Bank, J.P. Morgan and Morgan Stanley have advised Broadcom in writing that they are “highly confident that they will be able to arrange the necessary debt financing for the proposed transaction.”

Silver Lake Partners, which has served as a strategic partner to Broadcom in prior transactions, has provided Broadcom with a commitment letter for a $5B convertible debt financing in connection with the transaction.

Broadcom expects that the proposed transaction would be completed within approximately 12 months following the signing of a definitive agreement.

QCOM closed at $61.81. AVGO closed at $273.63. NXPI closed at $115.02.


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