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Why Is Michael Kors (KORS) Down 6.7% Since its Last Earnings Report?

A month has gone by since the last earnings report for Michael Kors Holdings LimitedKORS . Shares have lost about 6.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is KORS 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 drivers.

Michael Kors Beats Q3 Earnings & Sales Estimate

Michael Kors Holdings maintained its positive earnings surprise streak for the 11th consecutive quarter, with third-quarter fiscal 2018 results. Revenues were ahead of the estimate for the fourth straight quarter. The results were driven by robust performance by the Michael Kors and Jimmy Choo brands.

The luxury lifestyle retailer delivered quarterly earnings of $1.77 a share that surpassed the Zacks Consensus Estimate of $1.29 and rose 7.9% from the year-ago quarter. Total revenues of $1,440.1 million outpaced the Zacks Consensus Estimate of $1,375 million and improved 6.5% year over year. On a constant currency basis, total revenues were up 4.6%.

Adjusted gross profit jumped 9.9% to $885.6 million. Meanwhile, adjusted gross margin came in at 61.5%, up 190 basis points (bps) year over year. Foreign currency translation drove gross margin by nearly 10 bps. Adjusted operating income inched up 1% to $345.7 million and operating margin expanded 130 bps to 24%.

Segment Performance

Retail net sales came in at $846.3 million, up 1.1% year over year. The upside was mainly driven by 32 stores openings since the end of third-quarter fiscal 2017. It was also aided by better-than-expected performance in Europe and Americas. However, comparable sales declined 3.2%. On a constant-currency basis, retail net sales dropped 1% and comparable sales fell 5.2%.

Wholesale net sales were down 8.9% to $430.8 million, while on a constant currency basis, it declined 10.5%. Licensing revenues jumped 12.3% to $48.3 million.

Other Details

Michael Kors ended the quarter with cash and cash equivalents of $317.1 million and shareholders' equity of $2,076.9 million, excluding non-controlling interest of $3.4 million.

As of Dec 30, 2017, the company operated 848 retail outlets (395 in the Americas, 202 in Europe and 251 in Asia), including concessions. The company had 150 additional retail outlets, including concessions, operated through licensing partners. Thus, the total number of global Michael Kors stores was 998 at the end of the quarter under review. Jimmy Choo had 179 retail stores, including concessions, at the end of the third quarter. Further, Jimmy Choo operated 55 additional retail outlets, including concessions, through licensing partners.

Guidance

Management raised fiscal 2018 revenue guidance to $4.66 billion from the previous $4.59 billion. Meanwhile, it continues to expect comparable sales decline in the mid-single digit range. The company's total revenues expectation includes $225-$$230 million of incremental Jimmy Choo revenues. Operating margin projection is maintained at 18%. Management anticipates earnings per share in the band of $4.40-$4.45, up from the earlier guided range of $3.62-$3.72.

For the fiscal fourth quarter, Michael Kors forecasts total revenues between $1.11 billion and $1.13 billion and comparable sales decline in low single digits. The company's fourth-quarter revenue projection takes into account $110-$115 million of incremental Jimmy Choo revenues. Operating margin is anticipated at 10%. Management projects earnings in the band of 50-55 cents per share for the quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to five lower.

Michael Kors Holdings Limited Price and Consensus

Michael Kors Holdings Limited Price and Consensus | Michael Kors Holdings Limited Quote

VGM Scores

At this time, KORS has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, KORS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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