Source: Company reports/Fung Global Retail & Technology

3Q17 Results

Michael Kors reported total revenue of $1.35 billion for 3Q17, down 3.2% from $1.40 billion in the year-ago quarter. Total revenue decreased by 2.6% on a constant currency basis. EPS was $1.64, beating the consensus estimate of $1.63. Comparable sales decreased by 6.9%, missing consensus of (5.1)% and coming in below prior guidance that called for a mid-single-digit decline. The weak results were due to the underperformance the North America and Europe businesses; the Asia region outperformed. The company was disappointed with comp sales results in North America and Europe and expects weak traffic and sales trends to continue throughout the spring season in these two regions. The company also announced detailed initiatives to turn around the business, including improving design elements, expanding the presence of better-selling categories such as footwear and women’s dresses, and significantly increasing digital marketing spending.

Performance by Segment

Retail revenue was $836.7 million, missing the consensus estimate of $842.7 million and up 9% from the same period a year ago. The wholesale segment reported $473.1 million in revenue, beating the estimate of $471.6 million. The company’s licensing business reported revenue of $43 million, which was below the estimate of $49 million. As the company reduces wholesale inventory, it expects the wholesale business to constitute a smaller part of the overall business. The e-commerce business at Michael Kors continued to outperform, posting double-digit comp sales at its flagship site in North America. Store traffic continued to decline at high-single-digit rates;the traffic declines were partially offset by improving conversion rates. Click-and-collect options were popular at the 10 stores where the service was initially offered. The company plans to roll out this feature in all US locations by the end of the company’s fiscal fourth quarter.

FY17/4Q17 Outlook

Michael Kors now expects total revenue to be about $4.48 billion for the fiscal year, down from the previous expectation of $4.55 billion. EPS for the full year is expected to be $4.15–$4.19, versus consensus of $4.37. For 4Q17, the company expects total revenue of $1.035–$1.055 billion,including a planned reduction of wholesale shipments, versus consensus of $1.11 billion. Comp sales are expected to decrease in the low-teens range, missing the estimate of (4.1)%. EPS is expected to be $0.68–$0.72, below consensus of $0.92.