Michael Kors Surges as Turnaround Efforts Show Progress

  • Same-store sales decline far less than analysts projected
  • North America, Europe results exceeded expectations, CEO says

Why Michael Kors and Jimmy Choo Make a Good Fit

Michael Kors Holdings Ltd.’s strategy to entice shoppers and get them to pay more for its luxury apparel and handbags is showing some signs of success.

Profit and sales in the quarter that ended in July both exceeded analysts’ estimates, driving the shares up as much as 14 percent in early trading.

The fashion house has been refreshing designs and sprucing up stores to lure customers to pay full price for products, while reducing department store markdowns, which have eroded its brand cachet. Last month, Michael Kors agreed to buy shoemaker Jimmy Choo Plc for $1.2 billion to add luster to the brand, and Chief Executive Officer John Idol said he’s planning for more acquisitions to boost growth.

The strategy is akin to that of rival Coach Inc., which bought shoe brand Stuart Weitzman in 2015 and handbag maker Kate Spade & Co. in May. While Michael Kors is shuttering as many as 125 retail locations in the next two years as part of its turnaround plan, it ended last quarter with 67 more stores than it had a year earlier -- a total of 838.

“Investors have been afraid that Michael Kors was on a downward spiral, but this result appears to show them emerging from that black hole,” said Simeon Siegel, an analyst at Instinet LLC. “With better-than-expected numbers, Michael Kors can work to regain the permission to charge full price” to customers, he said.

While same-store sales -- a closely watched measure -- fell 5.9 percent, that was far less than the average 8.9 percent estimate of analysts, according to Consensus Metrix. Idol said the company saw better-than-expected results in both North America and Europe.

Shares of the London-based company climbed as high as $42.60 in premarket trading. The stock had declined 13 percent this year through Monday’s close.

Excluding some items, profit was 80 cents a share last quarter. That topped analysts’ average 62-cent projection. Sales fell 3.6 percent to $952.4 million, compared with estimates for $919 million.

Michael Kors also raised its forecast for full-year earnings to $3.62 to 3.72 a share. In May, it said it expected profit of $3.57 to $3.67.

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