Michael Kors proves that excess is the secret to success
New York — Michael Kors Holdings’ strategy to entice shoppers and get them to pay more for its luxury apparel and handbags is showing some signs of success.
Profit and sales in the quarter that ended in July both exceeded analysts’ estimates, driving the shares up as much as 14% in early trading.
The fashion house has been refreshing designs and sprucing up stores to lure customers to pay full price for products, while reducing department store markdowns, which have eroded its brand cachet.
In July, Michael Kors agreed to buy shoe maker Jimmy Choo for $1.2bn to add lustre to the brand, and CEO John Idol said he was planning for more acquisitions to boost growth.
The strategy is akin to that of rival Coach, which bought shoe brand Stuart Weitzman in 2015 and handbag maker Kate Spade & Co in May. While Michael Kors will close as many as 125 retail locations in the next two years as part of its turnaround plan, it ended last quarter with 67 more stores than it had a year earlier — a total of 838.
"Investors have been afraid that Michael Kors was on a downward spiral, but this result appears to show them emerging from that black hole," said Simeon Siegel, an analyst at Instinet. "With better-than-expected numbers, Michael Kors can work to regain the permission to charge full price" to customers, he said.
While same-store sales — a closely watched measure — fell 5.9%, that was far less than the average 8.9% estimate of analysts, according to Consensus Metrix.
Idol said the company produced better-than-expected results in North America and Europe.
Shares of the London-based company climbed as high as $42.60 in premarket trading. In 2017, the stock had declined 13% by the close on Monday.
Excluding some items, profit was 80c a share last quarter. That topped analysts’ average 62c projection. Sales fell 3.6% to $952.4m, compared with estimates for $919m.
Michael Kors also raised its forecast for full-year earnings to $3.62-$3.72 a share. In May, it said it expected profit of $3.57-$3.67.