Michael Kors Profit Tops Estimates as New Stores Boost Sales

  • Retailer is investing in digital operations to spur revenue
  • Handbag maker lowers annual forecast amid increased spending

Kors has been opening new international locations more quickly than it has been adding them in its core North American market, helping its revenue climb.

Photographer: Timur Emek/Getty Images

Michael Kors Holdings Ltd., the seller of luxury handbags and clothing, posted second-quarter profit that topped analysts’ estimates as new retail locations boosted sales.

Earnings in the quarter through Sept. 26 were $1.01 a share, the company said in a statement on Wednesday. Analysts estimated 89 cents, on average.

Michael Kors, founded by the American designer of the same name, has been opening new international locations more quickly than it has been adding them in its core North American market. That’s helped revenue climb even as the strong U.S. dollar weighs on sales. Revenue in the quarter rose 6.9 percent to $1.13 billion, topping analysts’ $1.08 billion average projection. Excluding currency effects, sales would have increased 12 percent.

“Accessible luxury is a new category internationally, and there’s a preference for American brands,” said Corinna Freedman, an analyst at BB&T Capital Markets.

The shares advanced 8.3 percent to $42.57 at the close in New York. Kors, which is based in London, has fallen 43 percent this year.

New Products

Michael Kors, whose namesake serves as the company’s chief creative officer, plans to add new products in the second half of the year and is working to improve its digital operations to spur sales. Still, the company and its wholesale partners are slashing prices to clear a backlog of out-of-style products amid slow mall traffic and sluggish tourism spending.

The company lowered its forecast for profit in its current fiscal year, saying spending on items such as its online business, new stores and distribution will increase costs. Earnings in the year through March will be $4.38 to $4.42 a share, the company said Wednesday. That’s down from a previous forecast of $4.40 to $4.50.

Handbag Trends

Trends among younger handbag shoppers aren’t favoring Kors. Millennial customers prefer smaller bags and cross-body purses, which typically have lower retail values, executives said on a conference call in August. Analysts also have said that the company’s turn toward discounting older merchandise may damage the aura of fashionability that had once propelled its sales.

"It’s going to take a lot to dispel the concerns," said Simeon Siegel, an analyst at Nomura Securities.

Same-store sales fell 3.4 percent last quarter, excluding currency fluctuations. That was better than the 4.1 percent decline analysts predicted. Sales on that basis will decline by a low-single-digit percentage in the current quarter, the company said.

Kors also said Wednesday that it added $500 million to its share buyback program and extended the plan through March 2018. The company now has about $758 million available to repurchase stock.

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