Investors are selling off Michael Kors stock today after the firm’s third-quarter comps were worse than expected and management delivered a grim sales outlook for current quarter as well as the remainder of the year.
As of 1 p.m. today, Michael Kors shares remained down more than 12 percent, to $36.26.
The company reported that its Q3 revenues slipped 3.2 percent, to $1.35 billion, missing analysts’ forecasts for revenues totaling $1.36 billion. Comps also fell short of expectations, declining 6.9 percent year-over-year, when analysts predicted a decline of 4.9 percent.
Net income also declined nearly 8 percent, to $271.3 million, or $1.64 per diluted share, landing a penny above analysts’ bets for diluted earnings per share of $1.63.
Michael Kors chairman and CEO John Idol said there were several bright spots during the quarter, among them momentum in the brand’s athletic footwear business. However, he was “disappointed” in the company’s North American and European comparable sales, which were impacted by ongoing declines in store traffic and currency fluctuations.
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“We believe the Michael Kors brand remains strong, but it is clear that we must enact changes to reverse the negative comparable sales trends that we are experiencing in our stores,” Idol said.
Among his go-forward plans, the Kors chief said he plans to ramp up the firm’s digital marketing spending and increase the penetration of footwear in its largest volume doors.
“As one of the leading fashion footwear companies globally, we intend to capitalize on this strength and increase the presence of this category in key stores,” he said.
Retail net sales increased 9.2 percent, to $836.7 million, driven primarily by 193 new store openings in the past year, including 143 stores associated with the company’s recent acquisitions of the previously licensed operations in Greater China and South Korea.
Michael Kors’ total revenue in the Americas decreased 7.4 percent, or 7.5 percent on a constant currency basis, to $983.8 million in the third quarter. European revenues decreased 7 percent — and 2.7 percent on a constant currency basis — to $256.7 million.
Meanwhile, revenue in Asia increased 89.1 percent, or 84 percent constant-currency, to $112.3 million, largely driven by the company’s acquisitions of the Greater China and South Korea operations.
Kors also lowered its revenue outlook for the fiscal year. The company now expects revenues of $4.48 billion and a comp decrease in the high-single digit range, compared with its previous expectation of $4.55 billion in revenues and a comp decline in the mid-single digit range. Adjusted diluted EPS is now expected to be in the range of $4.15 to $4.19 and $4.09 to $4.13 on a reported basis, compared to the earlier predictions for adjusted diluted EPS $4.37 to $4.43 and $4.32 to $4.38 on a reported basis.
For the fourth quarter of fiscal 2017, the company expects total revenue to be between $1.035 billion and $1.055 billion, which includes a planned reduction in wholesale shipments and a comparable sales decrease in the low-teens range. Diluted EPS is expected to be in the range of 68 cents to 72 cents.
