Michael Kors on Wednesday said it will shutter between 100 and 125 of its full-price stores over the next two years in order to improve the profitability of its store fleet. As a result, the company expects to incur between $100 million and $125 million of one-time costs, but anticipates annual savings of $60 million, according to a company press release.
Also on Wednesday the apparel and accessories retailer reported fourth quarter revenue fell 11.2% to $1.06 billion, edging out an analyst forecast cited by Reuters for $1.05 billion. Same-store sales in the quarter fell 14.1% missing the Consensus Metrix estimate cited by Reuters for a 13.4% decline. Q4 direct-to-consumer same-store sales including e-commerce fell 14.1% or 13.6% on a constant-currency basis, the company said. Q4 wholesale net sales fell 22.8% to $456.1 million or 22.3% on a constant currency basis, while licensing revenue fell 6.2% to $33.4 million.
The company reported a quarterly net loss of $26.8 million, or 17 cents per share, down from net income of $177 million, or 98 cents per share, in the year-ago period. Excluding $193.8 million of non-cash impairment charges primarily associated with underperforming full-price retail stores, Q4 earnings were 73 cents per share, besting analyst expectations cited by Reuters for 70 cents per share.
In his statement on Wednesday, CEO John D. Idol, as so many chief executives have in recent quarters, noted the challenging retail environment and ongoing pressure for discounts. He also admitted that the Michael Kors' “product and store experience did not sufficiently engage and excite consumers” and warned that fiscal 2018 will be a transition year.
For that period, the company said it expects revenue of $4.25 billion, missing the Thomson Reuters I/B/E/S estimate cited by Reuters for $4.37 billion, and a same-store sales decline in the high single-digit range.
“We acknowledge that we need to take further steps to elevate the level of fashion innovation in our accessories assortments and enhance our store experience in order to deepen consumer desire and demand for our products,” Idol said. “We have a strong brand, led by Michael Kors, with a history of fashion innovation and leadership, a global footprint with stores positioned in the best locations around the world and the marketing expertise to effectively convey our fashion stories."
But GlobalData Retail Managing Director Neil Saunders questioned whether the company is on track, considering its "precipitous" retail sales drop, and warned that it may have further to fall. “[I]f anything it raises a question mark over whether management can win back customers as it tries to reinvigorate the brand,” he said.
The wholesale drop is understandable, considering that Michael Kors, like Coach and others, has scaled back department store sales in its effort to fight the promotional environment there. But the retail side should be making up for that somewhat, according to Saunders. “Unfortunately for Michael Kors, this rebalancing does not seem to be taking place,” Saunders said in an email to Retail Dive. “Indeed, the retail figures were catastrophic. A 0.5% rise in total sales may appear to be a green shoot; however, when put in the context of the 159 stores added over the past year, it is a highly unsatisfactory outcome.”
The fact that rivals like Coach are demonstrating healthy demand for premium accessories puts Michael Kors' results in an especially poor light, Saunders also said. “[A]s much as Michael Kors is undertaking the right corrective action regarding distribution, it has fallen well short in its efforts to rebuild and reinvigorate the brand,” he said. “[R]anges and collections lack oomph and definition, and across many established stores, levels of service and merchandising are lackluster. In short, the brand is nowhere near where it needs to be if it wants to excite and inspire consumers.”
The brand is suffering from its former willingness to expand its store fleet and tag its goods with discounts, giving shoppers reason to look elsewhere for higher-end goods. While the company’s expansion into fragrance and wearables could help, Saunders warned it may also prove to be a distraction from job one.
“[I]t is clear that Michael Kors has further to fall,” he said. “In the near term, sales will decline further as the group struggles to find its place in the market. Longer term a chance remains that Michael Kors can succeed. It has taken much of the painful action on restructuring, but must now focus squarely on rebuilding the brand.”