Michael Kors' sales shine as brand refresh efforts pay off

Michael Kors Holdings Ltd reported strong holiday-quarter sales and raised its full-year revenue forecast, showing the luxury goods maker’s moves to cut promotions in order to reinvigorate sales and brand prestige were paying off.

The retailer’s shares rose more than 7 percent in trading before the U.S. market opened on Wednesday.
Once the hottest name in affordable luxury, Kors chose to appeal to a mass market by making its sought-after products such as handbags more widely available and offering promotions. But that led to brand fatigue and a year-long decline in revenue.

Last year, Kors dialed back supplies to department stores and off-price channels, refreshed its product lines and shut underperforming stores. It intensified these moves in the key holiday shopping season.
Coupled with sales of Jimmy Choo, the high-end shoemaker it bought last year, Kors posted an increase in total revenue for the second quarter in a row. The 6.5 percent jump to $1.44 billion also beat analysts expectations of $1.38 billion.

Kors said same-store sales fell 3.2 percent in its third quarter ended Dec. 30, much less than analysts average estimate of a 6.8 percent drop, according to Thomson Reuters I/B/E/S.

However, backing out Jimmy Choo’s contribution of $114.7 million, Kors’ total revenue fell 2 percent.
That highlights “Michael Kors was not one of the winners this holiday season as it was not able to capitalize on heightened consumer spending and confidence,” Managing Director of GlobalData Retail Neil Saunders said in a note.

Saunders said the pullback from unfavorable sales channels and on promotions were an ongoing process and “cannot be used to explain away the weak performance entirely.”

The boost from Jimmy Choo in part helped Kors raise its full-year revenue forecast to $4.66 billion from $4.59 billion.

Kors’ holiday-quarter net income fell 19 percent to $219.4 million, or $1.42 per share, due to a higher tax rate and an increase in operating costs.

Excluding one-time items, the company earned $1.77 per share, beating analysts’ estimates of $1.29.