A month has gone by since the last earnings report for Michael Kors Holdings Limited . Shares have lost about 3.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Michael Kors Tops Q3 Earnings, Revenues Meet Estimates
Michael Kors Holding continued with its positive earnings surprise streak for the seventh-consecutive quarter, when it posted third-quarter fiscal 2017 results. However, total revenue came in line with the Zacks Consensus Estimate. Though the company witnessed better-than-expected earnings and in line revenues, investors’ sentiments were hurt due to year-over-year decline registered in the top line and the bleak outlook.
The luxury lifestyle retailer delivered quarterly earnings of $1.64 a share that outperformed the Zacks Consensus Estimate of $1.62 and rose 3.1% from the year-ago period. Total revenue of $1,352.8 million came in line with the Zacks Consensus Estimate but declined 3.2% year over year. On a constant currency basis, total revenue decreased by 2.6%.
Further, we observed that Michael Kors’ third-quarter earnings came in line with the company’s projection but revenues missed the company’s forecast. The company had anticipated revenue in the range of $1.365–$1.380 billion and earnings between $1.61 and $1.65 per share.
During second-quarter fiscal 2017, the company introduced Michael Kors ACCESS line of smartwatches and fitness trackers, debuted new Wonderlust fragrance, new fall handbag collections and expanded men’s offering. Moreover, the company augmented online penetration, with the launch of digital flagships in most of the European countries. During the third quarter, the company witnessed favorable response to new Fall as well as holiday handbag collections and the launch of Michael Kors ACCESS line of wearable technology. The company stated that it will continue with its expansion drive in Asia and further believes that the company has a $1 billion opportunity over the long term.
However, management announced that results were hurt by comparable sales performance of North American and European market. Further, Michael Kors stated that headwinds in the aforementioned market will continue throughout the Spring season primarily due to sluggish mall traffic, currency fluctuation and uncertainty surrounding certain political changes in European countries.
Gross profit dropped 3.1% to $805.7 million, however, gross margin expanded 10 basis points (bps) to 59.6% favorably impacted by foreign currency translation and transaction. Operating income declined 16.5% to $341.9 million, while operating margin contracted 400 bps to 25.3%.
Segment Performance
Retail net sales came in at $836.7 million, up 9.2% year over year. The upside was mainly driven by 193 net new stores openings since the end of third-quarter fiscal 2016, which includes 143 outlets related to the company's buyout in Greater China and South Korea. Comparable sales declined 6.9%. On a constant currency basis, retail net sales increased 10%, while comparable sales fell 6.4%.
Wholesale net sales slumped 17.8% to $473.1 million, while on a constant currency basis, it fell 17.5%. Licensing revenue tumbled 22.9% to $43 million.
Regional Performance
Total revenue in the Americas declined 7.4% to $983.8 million on a reported basis and fell 7.5% on a constant currency basis. European revenue dropped 7% to $256.7 million on a reported basis and 2.7% on a constant currency basis. Revenue in Asia soared 89.1% to $112.3 million on a reported basis, while it surged 84% on a constant currency basis.
Other Details
Michael Kors ended the quarter with cash and cash equivalents of $368.8 million, short-term debt of $147.8 million and shareholders’ equity of $1,852.1 million, excluding non-controlling interest of $2.4 million.
As of Dec 31, 2016, the company operated 816 retail outlets (397 in The Americas, 199 in Europe and 220 in Asia), including concessions. The company had 128 additional retail outlets, including concessions, operated through licensing partners. Consequently, total number of Michael Kors stores globally stands at 944 at the end of the quarter under review.
During the third quarter, Michael Kors bought back 2,069,706 shares for approximately $100 million. As of Dec 31, 2016, the company still had $250 million remaining under its share buyback program.
Guidance
Michael Kors now envisions fiscal 2017 total revenue to be approximately $4.48 billion and expects comparable sales to decrease in the high-single digit range. Operating margin is now projected to be about 19.9%, on a non-GAAP basis. Management anticipates non-GAAP earnings in the band of $4.15–$4.19 per share for the fiscal year.
Earlier, management had projected fiscal 2017 revenue to be about $4.55 billion and earnings in the range of $4.37–$4.43 per share, on a non-GAAP basis.
For the fourth quarter, Michael Kors forecast total revenue between $1.035 billion and $1.055 billion and expects comparable sales to decline in the low-teens range. Operating margin is anticipated to be approximately 14%. Management projects earnings in the range of $0.68–$0.72 per share for the fourth quarter.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
VGM Scores
At this time, Michael Kors' stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Outlook
Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is Michael Kors (KORS) Down 3.9% Since the Last Earnings Report?
A month has gone by since the last earnings report for Michael Kors Holdings Limited . Shares have lost about 3.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Michael Kors Tops Q3 Earnings, Revenues Meet Estimates
Michael Kors Holding continued with its positive earnings surprise streak for the seventh-consecutive quarter, when it posted third-quarter fiscal 2017 results. However, total revenue came in line with the Zacks Consensus Estimate. Though the company witnessed better-than-expected earnings and in line revenues, investors’ sentiments were hurt due to year-over-year decline registered in the top line and the bleak outlook.
The luxury lifestyle retailer delivered quarterly earnings of $1.64 a share that outperformed the Zacks Consensus Estimate of $1.62 and rose 3.1% from the year-ago period. Total revenue of $1,352.8 million came in line with the Zacks Consensus Estimate but declined 3.2% year over year. On a constant currency basis, total revenue decreased by 2.6%.
Further, we observed that Michael Kors’ third-quarter earnings came in line with the company’s projection but revenues missed the company’s forecast. The company had anticipated revenue in the range of $1.365–$1.380 billion and earnings between $1.61 and $1.65 per share.
During second-quarter fiscal 2017, the company introduced Michael Kors ACCESS line of smartwatches and fitness trackers, debuted new Wonderlust fragrance, new fall handbag collections and expanded men’s offering. Moreover, the company augmented online penetration, with the launch of digital flagships in most of the European countries. During the third quarter, the company witnessed favorable response to new Fall as well as holiday handbag collections and the launch of Michael Kors ACCESS line of wearable technology. The company stated that it will continue with its expansion drive in Asia and further believes that the company has a $1 billion opportunity over the long term.
However, management announced that results were hurt by comparable sales performance of North American and European market. Further, Michael Kors stated that headwinds in the aforementioned market will continue throughout the Spring season primarily due to sluggish mall traffic, currency fluctuation and uncertainty surrounding certain political changes in European countries.
Gross profit dropped 3.1% to $805.7 million, however, gross margin expanded 10 basis points (bps) to 59.6% favorably impacted by foreign currency translation and transaction. Operating income declined 16.5% to $341.9 million, while operating margin contracted 400 bps to 25.3%.
Segment Performance
Retail net sales came in at $836.7 million, up 9.2% year over year. The upside was mainly driven by 193 net new stores openings since the end of third-quarter fiscal 2016, which includes 143 outlets related to the company's buyout in Greater China and South Korea. Comparable sales declined 6.9%. On a constant currency basis, retail net sales increased 10%, while comparable sales fell 6.4%.
Wholesale net sales slumped 17.8% to $473.1 million, while on a constant currency basis, it fell 17.5%. Licensing revenue tumbled 22.9% to $43 million.
Regional Performance
Total revenue in the Americas declined 7.4% to $983.8 million on a reported basis and fell 7.5% on a constant currency basis. European revenue dropped 7% to $256.7 million on a reported basis and 2.7% on a constant currency basis. Revenue in Asia soared 89.1% to $112.3 million on a reported basis, while it surged 84% on a constant currency basis.
Other Details
Michael Kors ended the quarter with cash and cash equivalents of $368.8 million, short-term debt of $147.8 million and shareholders’ equity of $1,852.1 million, excluding non-controlling interest of $2.4 million.
As of Dec 31, 2016, the company operated 816 retail outlets (397 in The Americas, 199 in Europe and 220 in Asia), including concessions. The company had 128 additional retail outlets, including concessions, operated through licensing partners. Consequently, total number of Michael Kors stores globally stands at 944 at the end of the quarter under review.
During the third quarter, Michael Kors bought back 2,069,706 shares for approximately $100 million. As of Dec 31, 2016, the company still had $250 million remaining under its share buyback program.
Guidance
Michael Kors now envisions fiscal 2017 total revenue to be approximately $4.48 billion and expects comparable sales to decrease in the high-single digit range. Operating margin is now projected to be about 19.9%, on a non-GAAP basis. Management anticipates non-GAAP earnings in the band of $4.15–$4.19 per share for the fiscal year.
Earlier, management had projected fiscal 2017 revenue to be about $4.55 billion and earnings in the range of $4.37–$4.43 per share, on a non-GAAP basis.
For the fourth quarter, Michael Kors forecast total revenue between $1.035 billion and $1.055 billion and expects comparable sales to decline in the low-teens range. Operating margin is anticipated to be approximately 14%. Management projects earnings in the range of $0.68–$0.72 per share for the fourth quarter.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Michael Kors Holdings Limited Price and Consensus
Michael Kors Holdings Limited Price and Consensus | Michael Kors Holdings Limited Quote
VGM Scores
At this time, Michael Kors' stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Outlook
Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.