Michael Kors Holdings Ltd.’s KORS fourth-quarter fiscal 2015 adjusted earnings per share of 96 cents beat the Zacks Consensus Estimate of 90 cents as well as came ahead of the prior-year quarter figure of 78 cents.
Revenues of $1,081 million also came ahead of the Zacks Consensus Estimate of $1,079 million while rising 17.8% (23.3% in constant currency) year over year.
However, a 5.8% decrease in comparable-store sales (down 1.7% in constant currency) for the quarter as against a 26.2% increase in the prior-year quarter and a lower-than-expected outlook for 2016 has sent investors into a tizzy. Comps were nowhere close to management’s guidance of a mid-single-digit increase. This is the first time in 35 quarters that the company’s comps have declined. Shares are trading down 18% in the pre-market session.
Further, gross margin fell 150 basis points (bps) to 58.4% with forex headwinds alone contributing to a 30 bps decline. Operating margin shrunk 310 bps year over year to 23.7% owing to rise in operating expenses.
Segment Performance
Net sales generated in the Retail segment increased 14.9% year over year to $469.4 million due to 121 new stores openings over the past year and higher e-commerce sales. Operating profit decreased 19.5% to $72.2 million. For the Wholesale segment, revenues increased 20.4% to $570.4 million while operating profit grew 19% to $166.1 million.
Licensing segment revenues rose 16.5% to $41.3 million while operating profit grew 7.2% to $17.9 million.
Regional Performance
Revenues across North America grew 13.7% year over year to $840.5 million, while comps decreased 6.7%. In Europe, revenues increased 33.5% from the year-ago quarter to $219.8 million but comps fell 5.6%. Lastly, revenues in Japan grew 42.7% year over year to $19.2 million with a 12.4% rise in comps.
Other Financial Data
As of Mar 28, 2015, Michael Kors had cash and cash equivalents of $978.9 million and shareholders’ equity of nearly $2,241 million
At the end of the fourth quarter, Michael Kors operated 728 stores across the globe, inclusive of licensed locations. The company also repurchased 1.4 million shares worth $92 million in the quarter. Further, the company announced an additional $500 million worth of buyback authorisation that takes the total authorised amount to $1.5 billion through May 2017.
Guidance
Management expects fiscal 2016 revenues to be around $4.7 billion to $4.8 billion as against $4.2 billion reported in fiscal 2015. Further, comps are projected to remain flat with the 10.3% increase in fiscal 2015. Earnings are expected to be in the range of $4.40–$4.50 per share. The company expects earnings to take a 20 cents hit from currency headwinds.
The Zacks Consensus Estimate is pegged at $4.68 per share, which could see a downward revision in the coming days. Moreover, investments across board will lead to a 110 to 140 bps increase in operating expense margins.
Further, management expects first-quarter fiscal 2016 revenues to be in the range of $930 million to $950 million and comps to decrease in low-double digits. Earnings are expected to be in the range of 74–78 cents per share. The company expects earnings to take a 7 cents hit from currency headwinds. The Zacks Consensus Estimate is pegged at $1.03 per share, which could see a downward revision in the coming days. Moreover, investments across board will lead to a 550 to 600 bps increase in operating expense margins.
At present, Michael Kors carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Stocks to consider in the apparel retail sector include Perry Ellis International Inc. PERY, Columbia Sportswear Co. COLM and Oxford Industries Inc. OXM. Perry Ellis sports a Zacks Rank #1 (Strong Buy) while Columbia Sportswear and Oxford Industries carry a Zacks Rank #2 (Buy).
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