Michael Kors Holdings Limited KORS maintained its positive earnings surprise streak for the 12th straight quarter, when it reported fourth-quarter fiscal 2018 results. Revenues also came ahead of the Zacks Consensus Estimate for the fifth straight quarter. The results were driven by robust performance by the Michael Kors and Jimmy Choo brands.
However, in spite of reporting better-than-expected results shares are down roughly 5% during pre-market trading
hours, as the company guided fiscal 2019 earnings per share below analysts' expectations. In the past six months, the stock has improved 18%, while the industry
has advanced 23%.
This designer, marketer, distributor and retailer of branded apparel and accessories delivered quarterly earnings of 63 cents a share that surpassed the Zacks Consensus Estimate of 60 cents but declined 13.7% from the year-ago quarter. This follows an increase of 7.9% in the preceding quarter. We note that rise in cost of goods sold and higher interest expense might have hurt the bottom line. Even an increase in the top line failed to act as a savior.
Total revenues of $1,179.5 million outpaced the Zacks Consensus Estimate of $1,144 million and improved 10.8% year over year. Top line includes revenue contribution of $107.9 from Jimmy Choo. On a constant currency basis, total revenues were up 7.2%.
Adjusted gross profit jumped 14.9% to $712.3 million. Meanwhile, adjusted gross margin came expanded 220 basis points (bps) to 60.4% on account favorable channel mix attributable to increased proportion of retail sales and higher Retail and Wholesale gross margins. Jimmy Choo contributed 80 basis points to overall gross margin.
Adjusted operating income rose 2% to $154.2 million, while operating margin contracted 110 bps to 13.1%. Michael Kors brand generated higher income from operations. This was offset by increased investments in marketing, e-commerce and store openings with respect to Jimmy Choo.
Michael Kors Holdings Limited Price, Consensus and EPS Surprise
Michael Kors Holdings Limited Price, Consensus and EPS Surprise | Michael Kors Holdings Limited Quote
Retail revenue came in at $600.6 million, up 4.4% year over year. Management pointed that since fourth-quarter fiscal 2017, the company had opened 50 outlets, principally in Asia. It further notified that 48 outlets were closed down during the period. Comparable sales improved 2.3% buoyed by growth in the accessories, footwear, ready-to-wear and men's categories. On a constant currency basis, retail revenue inched up 0.1%, while comparable sales fell 1.7%.
Wholesale revenue were down 3.2% to $441.3 million, while on a constant currency basis, the same declined 6.1%. Licensing revenue plunged 11.1% to $29.7 million.
Other Financial Details
Michael Kors, which carries a Zacks Rank #2 (Buy), ended the quarter with cash and cash equivalents of $163.1 million, total long-term debt of $874.4 million and shareholders' equity of $2,017.7 million, excluding non-controlling interest of $3.8 million. The company repaid $320.2 million of debt in the final quarter.
During the quarter under review, Michael Kors bought back 3,157,459 shares for approximately $200 million. As of Mar 31, 2018, the company still had $642.2 million remaining under its share repurchase program.
As of Mar 31, 2018, the company operated 829 retail outlets (379 in The Americas, 198 in Europe and 252 in Asia), including concessions. The company had 151 additional retail outlets, including concessions, operated through licensing partners. Thus, the total number of global Michael Kors stores was 980 at the end of the quarter under review. Jimmy Choo had 182 retail stores, including concessions, at the end of the quarter. Further, Jimmy Choo operated 61 additional retail outlets, including concessions, through licensing partners.
Management now envisions first-quarter fiscal 2019 total revenue to be about $1,135 million, comprising incremental revenue of $140-$145 million from Jimmy Choo. Comparable sales for Michael Kors are expected to be flat. Operating margin is projected to be approximately 15.2%. The company forecast earnings in the band of 90-95 cents a share, including anticipated benefit of 1-3 cents from Jimmy Choo.
For fiscal 2019, management projects total revenue to be approximately $5.10 billion, comprising incremental revenue of $570-$580 million from Jimmy Choo. Comparable sales for Michael Kors are expected to be approximately flat. Operating margin is expected to be roughly 17.7%. Management envisions earnings in the range of $4.65-$4.75 per share, including dilution from Jimmy Choo of approximately 5-10 cents.
The Zacks Consensus Estimate for the first quarter and fiscal 2019 earnings is pegged at 89 cents and $4.78, respectively.
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