Michael Kors Rises After Forecast Exceeds Analyst Estimates

  • Company to cut department store exposure, focus on full price
  • Luxury brand to push ahead with China, Asia expansion

Michael Kors Holdings Ltd. rose the most in almost four months after its annual forecast exceeded analysts’ estimates, helped by a new lineup of handbags and the prospect of a deeper push into Asia.

Profit will be $4.56 to the $4.64 a share in the year through March 2017, the London-based maker of luxury purses and clothing said in a statement Wednesday. Analysts projected $4.51, on average.

Michael Kors released early summer products -- including some that aren’t available at other retailers -- to bring customers into its stores. The company also is accelerating its expansion in Asia after buying back its Greater China license, a move it announced Wednesday. The strategy is important because U.S. shoppers’ interest in the brand appears to have peaked, said Neil Saunders, chief executive officer of research company Conlumino.

“It is fortunate that Michael Kors has other regions to turn to for growth, with Asia having the most potential,” Saunders said.

Michael Kors also reported profit of 98 cents a share in the fiscal fourth quarter, topping analysts’ 97-cent average estimate. Fourth-quarter revenue rose 11 percent to $1.2 billion in the quarter, which ended April 2, beating analysts’ $1.15 billion average projection.

Shares Gain

The shares surged as much as 7.7 percent to $46 in New York, the biggest intraday gain since Feb. 2. Michael Kors already had advanced 6.6 percent this year through Tuesday.

Michael Kors’ Asian unit, which accounted for about 5.5 percent of the company’s total revenue, saw sales more than triple to $65.5 million in the fourth quarter. Meanwhile, revenue in the Americas, which made up more than 70 percent of the company’s total, rose only 4.6 percent.

The company also announced a new $1 billion share buyback program, which replaces its previous authorization. That program had $358.1 million still available as of April 2.

Department Stores

Michael Kors has been trying to combat weak demand from department-store companies such as Nordstrom Inc. and Macy’s Inc., which have reported sluggish sales for handbags and a slowdown in tourist spending because of the strong U.S. dollar. Michael Kors’s wholesale partners also have been slashing prices to clear a backlog of out-of-style products.

Executives said today on a conference call that Michael Kors is reducing its exposure to department stores by cutting inventory to focus on developing products to be sold at full price.

“While this strategy is expected to result in a meaningful decrease in wholesale net sales in fiscal 2017, we believe that it is the right strategy for the overall health of our business long term, as we protect our margins and brand equity,” CEO John Idol said.

The company has seen mall traffic in North America soften at an accelerating pace and expects that trend to continue, hurt by dwindling tourist demand and a difficult retail environment, Idol said.

Michael Kors has weathered that softer demand by keeping better control of its inventory, said David Schick, an analyst at Consumer Edge Research. Michael Kors’s inventory increased 5.2 percent last quarter, less than half the pace at which its sales gained.

“We see this as an important element in reducing investor fear, especially with such sluggish performance from department stores,” Schick said.

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