Premium apparel and accessories retailer Michael Kors has posted a better than expected fourth quarter but has disappointed the market on flat FY19 forecasts.
Delivering its financials for the quarter ended 30 May in the US overnight, the designer handbag giant said it expects flat comparable sales growth in the next fiscal year and diluted earnings per share to be between $4.65 – $4.75 – just within consensus estimates.
Shares fell six per cent in the hours after the announcement, despite a surprising bump in fourth quarter sales, up 10.8 per cent to US$1.18 billion.
Net income for the three months ended 31 March was $44.5 million, up from a $26.8 million loss this time last year.
Michael Kors has been investing heavily in transitioning its business model following the acquisition of Jimmy Choo last year, with chairman and chief executive John D. Idol saying on Wednesday that a solid foundation had been created.
“We created a global luxury group with the acquisition of Jimmy Choo and completed the first year of our Runway 2020 strategic plan for the Michael Kors brand, ending the year significantly ahead of our expectations,” he said.
“Looking to fiscal 2019, we have a number of initiatives planned to drive growth in both of our luxury brands.
“Overall, we are well-positioned to deliver long-term growth and enhance shareholder value by executing on the strategies in place for both Michael Kors and Jimmy Choo,” Idol continued.
The company expects building momentum to deliver first quarter revenue of around US$1.13 billion, with a US$140-US$145 million contribution from Jimmy Choo’s circa 182 stores.
For the fourth quarter, earnings per diluted share were $0.29, a $0.46 increase compared to last year. On an adjusted basis, earnings per diluted share were $0.63 compared to $0.73 in the prior year, with total revenue increased 10.8 per cent to $1.18 billion.
For the annual period ending March 2018 earnings per diluted share were $3.82 compared to $3.29 the previous year, while on an adjusted basis earnings per diluted share were $4.52, increased from $4.24 in the previous annual period.
Total revenue for the annual period increased 5 per cent to $4.72 billion.
GlobalData managing director Neil Saunders said that the addition of Jimmy Choo had masked weakness in Michael Kors.
“While the headline growth number from Michael Kors looks strong … it is flattered by the addition of Jimmy Choo sales; when these are stripped out, the growth plummets to a lackluster 0.6 per cent,” Saunders said.
“This anemic underlying growth rate comes off the back of a dire performance last year when revenues plunged by 11.2 per cent. Taking account of all these things, the fashion brand is ending its fiscal year with soft growth.
“Perhaps the most damning figure is the Americas retail sales number. Continuing the long run of declines, this fell by 2.5 per cent – a particularly worrying outcome given the 18 per cent decline posted in the prior year. In our view, this number clearly indicates that Michael Kors is not back to full strength and still has a lot of work to do on its proposition,” he continued.
