Michael Kors beats estimates but remains in turnaround mode
Michael Kors Holdings on Tuesday reported total first quarter revenue fell 3.6% to $952.4 million compared to the year-ago quarter, or 2.6% on a constant currency basis. However, the luxury brand topped the $919 million consensus estimate from FactSet cited by Marketwatch. Retail net sales rose 10.1% to $619.9 million, driven in large part by 67 net new store openings since Q1 last year and the acquisition of the Greater China license.
Q1 same-store sales fell 5.9%, or 4.9% on a constant currency basis, according to a company press release. That beat FactSet analysts’ expectation for a 9.2% decline, according to Marketwatch. Wholesale net sales in the quarter fell 23% to $303.6 million. Licensing revenue in the period fell 5.6% to $28.9 million. Total revenue fell in the Americas by about 8% and in Europe by 10% (or 7.5% on a constant currency basis) while it grew in Asia by around 60%, to $117.1 million.
Despite a profit decline, shares in the company rose more than 12.5% as earnings beat analyst expectations. Q1 adjusted earnings was 90 cents per share, topping the 62 cents per share estimate from FactSet consensus cited by Marketwatch.
Michael Kors is struggling with wholesale, in part thanks to declining department store sales, discounts at those stores and the company’s concerted effort to pull away from them. That makes the revenue drops unsurprising and in fact a “necessary evil,” according to GlobalData Retail Managing Director Neil Saunders.
It’s the brand’s same-store sales numbers that are troubling and point up the differences, at least at the moment, between Kors and comeback brand Coach, which has also dealt with falling department store sales, according to Saunders.
“These come off the back of a 7.4% decline in the prior year and, in our view, provide the clearest indication that Michael Kors has not yet re-established itself as a go-to luxury brand,” Saunders said in comments emailed to Retail Dive.
The brand is making an effort to improve its styles, and its Jimmy Choo acquisition will help drive sales, especially in Europe. But that will only go so far. The company still has a lot of work to do, making this year one of retrenchment rather than significant improvement.
“Given the current performance, this year does not look like it will be one of delivery,” Saunders said. “While the numbers may strengthen, the rest of this fiscal will essentially be one of rebuilding and refining the brand, as well as closing further excess capacity and investing in channels and stores that have the best forward potential.”
In his statement Tuesday, Michael Kors CEO John Idol expressed a similar sentiment. “We are encouraged by our first quarter performance, although we continue to believe that fiscal 2018 will be a transition year for our company, as we focus on laying the foundation for the future by executing on our strategic plan, Runway 2020,” he said. “While it is still early in the process, we are making meaningful progress enhancing our assortments, deepening our connection with consumers, and elevating our jet set luxury experience in our stores and digital flagships."
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