Key Points
Michael Kors reported fiscal 1Q19 revenues of USD 1.20 billion, up 26.3% year over year and above the consensus estimate of USD 1.14 billion. Diluted EPS was USD 1.22, up 52.5% from the year-ago quarter and above the consensus estimate of USD 0.94.
Comparable sales increased 0.2%, with positive performance in the Americas and Asia, partially offset by declines in Europe.
Michael Kors raised its full-year earnings guidance per share by USD 0.25 to USD 4.90–USD 5.00. For the full year, the company expects total revenues to be USD 5.125 billion.
Fiscal 1Q19 Results
Michael Kors reported fiscal 1Q19 revenues of USD 1.20 billion, up 26.3% year over year and above the consensus estimate of USD 1.14 billion. Diluted EPS was USD 1.22, above the consensus estimate of USD 0.94 and up 52.5 % from the year-ago quarter.
Total revenues of USD 1.20 Billion reflected USD 173 million of incremental revenues from Jimmy Choo and an 8 % increase in Michael Kors revenues compared to last year. Michael Kors retail revenues increased 3 %, which reflects nine net new store openings, bringing the total global store fleet to 191 stores.
The Michael Kors Wholesale business revenues increased 20 % for the quarter. The company reported that the growth was above expectations due to better sell-through and a shift in shipment timing from 2Q to 1Q.
The company reported that it is making progress on its Runway 2020 plan, which focuses on product innovation, brand engagement and customer experience. The customers are responding to “Kors Style,” which is head-to-toe dressing, which has helped the company to increase revenues “as our customers continue to engage with our lifestyle vision in both menswear and womenswear.”
Michael Kors licensing revenues decreased by 5 % to USD 27.5 million from USD 28.9 million the prior year. The company reported favourable responses to its fashion swim line offering in watches as well as continued growth in Michael Kors ACCESS smartwatches. However, the results were not enough to offset the continued decline of fashion watches and the transition from the fashion jewellery line to a new elevated fine jewellery collection.
Outlook
Michael Kors raised its full-year earnings per share guidance by USD 0.25 to USD 4.90–USD 5.00. For the full year, the company expects total revenues to be USD 5.125 billion. The company expects comparable sales to be flat, in line with prior guidance.
For 2Q19, the company expects total revenues of USD 1.260 billion, which includes between USD 110 and USD 115 million in incremental revenues from Jimmy Choo. Michael Kors expects 2Q retail revenues to grow in the low-single digits. Comparable-store sales are expected to decline in the low-single digits.
Michael Kors is on the discount rack
By guest author Elizabeth Winkler from Wall Street Journal
Investors panned the company’s purchase of Versace, but a sharp stock selloff leaves plenty of upside if its strategy of bulking up works out
In retail, living and dying by the health of a single brand or the mood of a season is a dangerous proposition. Established companies are competing not only with Amazon.com but also with a flood of venture capital-backed startups offering consumers lower prices and eroding the pricing power of incumbents. To survive, retailers need either nimbleness or size.
Michael Kors has now joined some American companies opting for the latter, fashioning themselves into houses of luxury in the vein of LVMH, the French conglomerate that owns brands from Louis Vuitton to Dom Pérignon. Owning multiple brands offsets risks, but diversification also can bring challenges.
Take Coach, which last year rebranded as “Tapestry” after acquiring Stuart Weitzman in 2015 and Kate Spade in 2017. The new company beat estimates last week when it reported fourth-quarter earnings, with the strength of its Coach and Kate Spade brands compensating for losses and execution issues at Stuart Weitzman.
Having multiple brands under one roof means that you don’t need to get everything right, says Simeon Siegel, a retail analyst at Nomura Securities. “You mute and moderate the fickleness of fashion, and as you grow, you can scale.”
That approach clearly carries an appeal for Michael Kors. It acquired Jimmy Choo last year and announced this fall that it is buying Versace for USD 2.4 billion. But absorbing brands is never as easy as the model suggests, says Mr. Siegel. Michael Kors was largely panned for overpaying for Versace. The Italian fashion brand is barely profitable. Shares tumbled, reflecting a fear that the new acquisition could destroy shareholder value.
Investors did not find much comfort in the company’s second-quarter earnings report either. On Wednesday, Michael Kors reported earnings of 91 cents a share, down from USD 1.32 a share a year ago, and revenue of USD 1.25 billion, missing estimates of USD 1.26 billion. Shares fell 15% in morning trading to a new one-year low.
At Michael Kors’s namesake brand, where revenue was flat compared with last year, the company blamed inventory problems. It had been cutting back on excess product but then did not have enough in certain styles that sold out. Sales at Jimmy Choo compensated somewhat, with stronger-than-expected growth. That has led the company to raise guidance for the year by 5 cents to USD 4.95 to USD 5.05 a share.
The Versace acquisition, which was only announced this quarter, wasn’t reflected in the report. The company has trumpeted the synergies of the deal: Jimmy Choo and Versace occupy a similar, rarefied niche, while Michael Kors tends to be categorized as “affordable luxury,” a lower notch on the opulence spectrum. It plans to increase Versace’s sales to USD 2 billion globally from €700 million (USD 800 million) in 2017, adding around 100 stores. Investors remain sceptical.
The selloff since the deal was announced is now roughly equivalent to what Michael Kors paid for the acquisition. At this price, investors have insulated themselves from the risk that Versace is a disastrous move and can benefit even it is merely a so-so one. The stock market’s judgment was swift, but it has given buyers an increasingly rare luxury—a margin of safety.
Michael Kors fumbles renewed demand for Logo Handbags
By guest author Suzanne Kapner from Wall Street Journal
Quarterly sales—and its shares—suffer as company finds itself lacking inventory
Michael Kors Holdings Ltd. KORS was unable to meet a renewed demand for handbags covered in its namesake logo, resulting in a sales shortfall for the recently completed quarter.
Chief Executive John Idol said Wednesday that a strategy to reduce inventory with the intent of selling more items at full price backfired when the company found itself “light” on goods.
The logo category in particular had taken off more than the company expected, he said. “We are sold out in certain styles.”
Shares of Michael Kors Holdings tumbled nearly 14 % to USD 49.64 in afternoon trading of November 7, 2018 and were at their lowest levels of the year.
Handbags, T-shirts and other items brandishing a brand’s logo had been hugely popular for much of the last two decades. But, demand cooled in recent years as consumers, particularly younger shoppers, sought a more individualistic look.
Now, they are apparently back in vogue. Brands from Coach to Tommy Hilfiger are seeing a renewed demand from consumers for clothing and accessories covered in giant logos.
The shortfall at Kors helped push the brand’s same-store sales down 2.1% in the three months to Sept. 29.
Mr. Idol said the company will be “chasing” product throughout much of the current quarter, and inventory may not return to adequate levels until after the holidays.
Total sales of Michael Kors Holdings rose 9.3% to USD 1.25 billion in its just-ended fiscal second quarter, helped by last year’s acquisition of shoe maker Jimmy Choo. Profit in the period fell 32% to USD 137.6 million, from USD 202.9 million a year earlier, on higher expenses.
The company plans to change its name to Capri Holdings after it closes its acquisition of the Italian fashion house Versace, which was announced in September.
On Wednesday, the company said because of currency effects it expects comparable-store sales for the Michael Kors brand to record a percentage decline in the low-single digits for the current fiscal year. In August, it had said it was expecting the brand’s comparable-store sales to be about flat.
EU Commission clears acquisition of Versace by Michael Kors
The European Commission on November 8, 2018, has approved, under the EU Merger Regulation, the acquisition of sole control over Gianni Versace of Italy by Michael Kors of the US. Both Michael Kors and Gianni Versace are active in the design, development, manufacture, distribution, wholesale, retail and licensing of luxury products globally, such as luxury accessories, footwear and apparel. The Commission concluded that the proposed acquisition would raise no competition concerns given that the overlap between the companies’ activites is limited.
The operation was examined under the simplified merger review procedure.