Michael Kors’ weak first quarter results
The retailer reported a total revenue of 0.2 per cent to $987.9 million from $986.0 million in the first quarter of fiscal 2016. On a constant currency basis, total revenue was flat versus the prior fiscal year.
Retail net sales increased 7.6 per cent to $562.9 million driven primarily by 221 net new store openings since the end of the first quarter of fiscal 2016, including 145 stores associated with the company’s recent acquisitions of Greater China and South Korea and the consolidation of the Latin American operations, Michael Kors announced.
The company reported a 7.4 per cent decrease in comparable sales. On a constant currency basis, retail net sales grew 7.4 per cent, and comparable sales decreased 7.6 per cent. Wholesale net sales decreased 7.0 per cent to $394.4 million and on a constant currency basis, wholesale net sales decreased 7.2 per cent.
Michael Kors’ sales results in Asia outperformed those in the Americas. Revenue in Asia increased 74.5 per cent to $73.1 million on a reported basis, and increased 67.7 per cent on a constant currency basis. Total revenue in the Americas decreased 5.0 per cent to $690.8 million on a reported basis and decreased 4.8 per cent on a constant currency basis. European revenue grew 3.3 per cent to $224.0 million on a reported basis, and grew 2.9 per cent on a constant currency basis.
Neil Saunders, CEO of Conlumino, said Michael Kors is not enjoying the resurgence that Coach has managed to engineer.
“This domestic woe is evident in the North American numbers which tumbled by five per cent, a sequentially worse performance than the previous quarter,” said Saunders.
Saunders said the worsening of North American results is partly attributable to the stronger dollar which has likely weakened tourist sales at key flagships in the United States.
“We believe Michael Kors is affected more than Coach in this respect, as it relies more on tourist spend at its larger stores. Nevertheless, given the investment being put into the new digital flagships – such as the one at 520 Broadway in New York – such an outcome is disappointing,” he said.
While North America was disappointing, the numbers from Europe were somewhat better with a 3.3 per cent increase in revenue over last year.
“Here, the MK brand is less ubiquitous and we believe the company’s new stores, such as the one recently opened on London’s Regent Street, are generating good trade in a way that the stores in North America are failing to do,” Saunders said.
“Given that the company has several further European digital flagship stores in the pipeline for this fall, it looks likely that Europe will continue to deliver respectable sales growth across this fiscal year.”
Looking ahead, while we expect international to grow this year, the increase will be offset by continued pressures in North America. As such, revenues will likely be flat which will create pressure on the bottom line given all of the investments the brand is making, Saunders added.