Michael Kors Reports Broad-Based Fourth-Quarter Growth, Even in Europe
06/12/2012| 11:42am US/Eastern
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--Growth continues to surge in second quarter as public company
--Europe sales unaffected by struggles at other retailers
--Better-than-expected results and guidance push shares up
(Adds additional details and executive comments from report and conference call throughout)
By Joan E. Solsman and Kristin Jones
Michael Kors Holdings Ltd. (>> Michael Kors Holdings Ltd) continued to report robust growth in a better-than-expected fiscal fourth quarter, as business even in crisis-weary Europe was challenged only by the company's ability to get enough of its luxury apparel and accessories to customers.
"While we are of course concerned about the headline news to date, we have not been impacted by these conditions" in Europe, Chairman and Chief Executive John Idol said on a conference call to discuss the results, noting the company made market share gains in accessories, footwear and apparel markets there.
Europe weakness was the Achilles' heel for a broad swath of retailers early this year, from teen outfitters Abercrombie & Fitch Co. (>> Abercrombie & Fitch Co.) to office-supplies seller Staples Inc. (>> Staples, Inc.). On the luxury side, Tiffany & Co. (TIF) last month trimmed its outlook for the year, citing softness in U.S. sales--including a 4% drop at its New York City flagship store, which relies heavily on European tourists--and "less than ideal" conditions in Europe, in addition to flattening growth in China.
But Michael Kors's Europe same-store sales increased 14% in the latest period. While that is slower than the 34% growth in the fiscal third quarter and trails North America's 37% increase in the latest period, Mr. Idol indicated the deceleration was due to inventory constraints.
"We're actually seeing acceleration in the current quarter," he said. The company is still relatively new in Europe compared with its three-decade presence in North America, but it has been plowing money into marketing there and in Japan to build brand awareness.
Wedbush Securities analyst Corinna Freedman said she believes overall same-store sales in the current quarter are likely trending near the 35% guidance unveiled Tuesday for the period, which is only a few weeks away from closing.
Michael Kors's strength in Europe was one of the drivers of its gross margin improvement. Gross margin widened to 57.7% from 55.9%, better than forecast, as high-margin Europe and retail sales both expanded as a percentage of sales mix. Margin-rich accessories also have been moving to a bigger proportion of Michael Kors's mix, representing 75% in the latest fiscal year compared with 62% the year before.
Michael Kors predicted the new fiscal year would be stronger than Wall Street expected. It forecast earnings of $1.08 to $1.12 a share on revenue of $1.7 billion to $1.8 billion, reflecting a same-store increase of around 20%. Analysts polled by Thomson Reuters recently expected earnings of 98 cents on revenue of $1.69 billion.
The same-store sales target, though slower than the 39% of the 2011 fiscal year, is an improvement from what the company had previously forecast, Ms. Freedman noted.
For the current quarter, the company is targeting per-share earnings of 18 cents to 20 cents on revenue of $360 million to $370 million, topping Street estimates of 17 cents and $324 million, respectively. The company is assuming a same-store sales increase of around 35%.
Shares rose on the results and outlook. The stock was up 6.7% at $40.70 in recent trading, after climbing as much as 12% earlier. The stock, which went public in December, has surged after pricing at an above-forecast $20.
Michael Kors, a 30-year-old brand, sells clothing, footwear and other apparel and accessories through luxury department stores and its own company-operated shops. The company has enjoyed a recent boom in retail and wholesale demand, in part from its expansion of shop-in-shop branded areas in department stores. Michael Kors has also sought to expand globally, launching stores in Japan earlier this year.
The company previously had also warned that difficulties in its transition to a new distribution facility had caused delays to wholesale and retail store customers, hampering sales. However, Chief Financial Officer Joseph B. Parsons said on the call that the company completed the transition with minimal additional disruptions.
For the quarter ended March 31, Michael Kors reported a profit of $43.6 million, or 22 cents a share, up from $17.4 million, or 10 cents, a year earlier. Excluding a reimbursement for fees related to the company's initial public offering and other items, earnings were 21 cents, up from 10 cents a share a year ago. Revenue jumped 58% to $380 million.
The company in March predicted earnings of 14 cents to 16 cents, on revenue of $350 million to $360 million.
Retail sales jumped 80%, reflecting the opening of 71 new stores. Same-store sales grew 36%. Wholesale revenue increased 46%, driven by strong results from the transition to shop-in-shops in department stores. Licensing royalties grew 27%.
Write to Joan E. Solsman at joan.solsman@dowjones.com and Kristin Jones at kristin.jones@dowjones.com
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