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Michael Kors: Just Another Victim of Weak Holiday Sales

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On Monday, shares of upscale retailer Michael Kors Holdings Limited are plummeting, down around 13% in mid-morning trading after reporting third quarter fiscal 2017 financial results.

Michael Kors reported earnings of $1.64 per share, beating the Zacks Consensus Estimate of $1.62 per share and rising 3.1% year-over-year. This also marks the company’s seventh-consecutive quarter of a positive earnings surprise. Net income, however, fell 8% to $271.3 million. Total revenues of $1.35 billion matched the Zacks Consensus Estimate but declined 3.2% year-over-year. On a constant currency basis, total revenue decreased by 2.6%.

While the top and bottom line results weren’t awful, Michael Kors’ comparable sales results are what is really killing its stock today. The retailer said that total comps fell 6.9% during the holiday quarter, and that’s not even the worst part. Its other segments took even bigger hits: wholesale net sales decreased 17.8% to $473.1 million while licensing revenue decreased 22.9% to $43 million.

Regionally, the retailer faced major headwinds pretty much everywhere. Total revenues in the Americas fell 7.4% to $983.8 million while European revenues were down 7% to $256.7 million. However, revenues in Asia increased 89.1% to $112.3 million, largely driven by recent acquisitions in Greater China and South Korea.

“While we face certain challenges in the short term, we continue to believe that there is meaningful long-term growth ahead for the company as we focus on maintaining our luxury leadership position while expanding the Michael Kors brand internationally,” said John D. Idol, Chairman and CEO.

Michael Kors’ outlook for fiscal 2017 is now much lower than what investors had originally forecasted. The company expects total revenue of approximately $4.48 billion and for comps to decrease in the high-single digit range. Adjusted diluted earnings per share should now fall in the range of $4.15 to $4.19 on a non-GAAP basis, excluding one-time costs.

Like its peers in the luxury goods market—Tiffany & Co. , Kate Spade , Burberry (BURBY - Free Report) , Coach , and LVMH, among others—Michael Kors has struggled with slumping sales and a growing boredom among their customer base. Heavy promotions and discounting has driven the value of its key products down, like their popular handbags, and smart customers now know not to pay full price anymore.

Michael Kors has a long road ahead of them, and arguably a bumpier one than any of its competitors. The retailer desperately needs to demonstrate its ability to investors to begin organizing a concrete turnaround plan because if not, the once coveted Michael Kors logo and brand will be forever relegated to the discount aisle.

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