Despite Q1 Gains, Michael Kors Holdings Feels Wall Street’s Sting

Fall fashion shoot for Michael Kors

Fall fashion shoot for Michael Kors

New York—Michael Kors Holding Ltd. today once again seemingly reported stellar earnings.

The luxury fashion brand reported $919.2 million in first quarter 2015 today, up 43.4% from the same period a year ago. Net income was $187.7 million, up 50%, and earnings per share were 91 cents, 10 cents ahead of analysts’ average estimate.

Then there was a comp store sales increase of 24.2% while the company opened 115 net new stores over the quarter and brought in a $32.1 million in licensing revenue. International sales also swelled with a 128% increase mostly from sales in Europe.

Nonetheless, the stock was down between 2.5% and 5% in pre-market trading –about $79 a piece.

Disappointing Outlook?

Part of the hesitation on investors’ part is the company’s second quarter where Wall Street was anticipating gross profit margins of 60.7%, but the company said it’s actually expecting a number closer to 60.3%.

Moreover, Kors Holdings expects revenue for the second quarter to be $950 million and $960 million with a comp store sales increase in the high teens. Its forecast for diluted earnings per share in the range of 85 cents to 87 cents versus analysts’ call for 89 cents.

For the full year the company anticipates revenue between $4.25 billion to $4.35 billion and earnings per share from $4 to $4.05. If realized this would be above the analysts’ consensus estimate of $3.96.  Kors Holdings previously issued full-year earnings guidance of $3.85 to $3.91 a share on revenue of $4 billion to $4.1 billion.

Speaking of analysts on a conference call, Chairman/CEO John Idol said the company previously had warned that margins were unsustainable.

Idol also took the opportunity to point out that the Kors brand doesn’t compete with just one rival–like Coach or Kate Spade— but instead, it focuses on the lot of luxury consumers in the world, competing not just in a singular category like handbags and small leathergoods, which makes up about 70% of its business.

“We’re trying to sell more full price products. So, we’re going to push the envelope. We’re going to try and get new fashion in the stores earlier, and we’re going to make some mistakes at times, absolutely, that’s what fashion is about,” Idol said.

The company plans to have a new store in SoHo open by October (a later timeline than originally anticipated), expansion in its men’s product line, and a push into more retail stores. Kors plans to upsize 41 stores globally, ending up with 400 stores in North America within the next 24 months, and also expand the brand by adding 55 stores in Europe, 10 in Japan. Overall, Idol says he sees capital expenditures for Kors to total about $400 million for fiscal year 2015.

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com