Michael Kors’ beat and raise boosts shares of luxury retailers
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.
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.
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.
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.
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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