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Michael Kors Stock Dips Ahead of Earnings: What to Expect

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Shares of Michael Kors Holdings (KORS - Free Report) fell 1.4% during regular hours Tuesday, the last day of trading before the luxury fashion company is releases its Q2 fiscal 2019 report tomorrow morning. Broad indexes posted gains on the day, so investors clearly displayed caution ahead of the event risk in KORS—but this nonetheless remains a key stock to watch.

Michael Kors is a global accessories, footwear, and apparel company. It offers two primary collections: the Michael Kors luxury collection and the MICHAEL by Michael Kors line, an affordably luxury brand. Michael Kors also acquired Jimmy Choo, a luxury shoes and handbags maker, last year.

The biggest news surrounding Michael Kors as of late was delivered in late September, when the company announced that it reached an agreement to buy luxury fashion house Versace for about $2.12 billion. Michael Kors Holdings will be renamed Capri Holdings upon completion of that deal.

The Jimmy Choo and Versace deals underscore Kors’ ambition to cement its status as a global leader in luxury, but until the latter of those two moves closes, investors will be eagerly anticipating a new financial update and news on the progress of its “Runway 2020” innovation and modernization plan.

So what is in the cards for KORS tomorrow morning? Let’s take a closer look.

Michael Kors Holdings Limited Price, Consensus and EPS Surprise

Michael Kors Holdings Limited Price, Consensus and EPS Surprise | Michael Kors Holdings Limited Quote

Earnings Outlook

As mentioned, Michael Kors will release its Q2 fiscal 2019 results before the opening bell Wednesday. Here’s what analysts are expecting, according to our Zacks Consensus Estimates:

Earnings: Michael Kors is projected to report adjusted earnings of $1.09 per share, which would represent a year-over-year decline of 18%.

Estimate Revisions: Kors has witnessed two negative earnings estimate revisions and just one positive adjustment within the last 60 days. The company guided light in its previous report, so earlier adjustments occurred outside this window. The Zacks Consensus for earnings is seven cents lower than it was 90 days ago as a result of this weak guidance.

Revenue: Consensus estimates have Kors’ Q2 revenue pegged at $1.26 billion. This would mark year-over-year growth of nearly 10%.

Valuation

KORS is trading at about 11.4x forward 12-month earnings heading into the report. This is a steep discount to the “Textile – Apparel” group’s average of 17.3x. It is also near the stock’s 52-week low for the metric.

This implies that investors are skeptical about Kors’ growth opportunities, which, if true, is curious considering its M&A moves. Acquisitions will dilute earnings in the short term but should inspire growth in the future. Some investors might conclude that this supports a value case for KORS right now.

Bottom Line

Michael Kors seems reasonably valued and presents interesting long-term growth prospects ahead of its report. However, the company’s latest near-term earnings trends have not been favorable. It guided lower for the to-be-reported quarter, and analysts followed suit.

Kors has not missed earnings estimates in any quarter we have on record, so that is not a particular concern tomorrow. But with a major acquisition in the works and all eyes on the Runway 2020 plan, it is likely that the post-earnings reaction will have more to do with guidance and management commentary—which can be unpredictable.

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