Thursday, November 5, 2015

KORS Q2 Earnings Blog

Michael Kors reported second quarter revenue and earnings that both topped the Street’s expectations. Revenue came in at $1.13B, which beat estimates by $50M and represented a 7% increase year-over-year. Revenues were driven by strength in the company’s retail and wholesale segments across all geographies. Retail sales were up 8% due to 39 new store openings, strength in North American digital flagships and continued momentum internationally. Japan led the way, with sales increasing 61% on a constant currency basis. Comps were down 8.5% for the quarter, which was in line with expectations. The comparable store sales decline in North America was slightly offset by comp increases in Europe and Japan. If the U.S. digital flagship stores were included in the calculation, comps would have only been down low-single-digits in the quarter. Wholesale sales for the quarter grew 8% mainly attributed to continued strength in the accessories category. During the quarter 223 globally located wholesale stores were converted into shop-in-shops. The company continues to expand its wholesale business across all geographies. Licensing revenue was down 8% in the quarter primarily due to lower watch sales, somewhat offset by increased sales of jewelry, outerwear and eyewear. Gross margins were down 220 bps primarily due to the foreign currency impact on sales. SG&A was up 250 bps as a result global retail expansion, digital flagship initiatives, infrastructure investment for Korea in the men’s business, the building of a new European distribution center and continued investment in corporate systems. On the bottom line, earnings were reported at $1.01, which was $0.12 higher than expectations. This beat included a $0.06 negative impact from foreign currency exchange rates. Turning to the balance sheet, cash and equivalents decreased 57% from the same quarter last year due to the company’s ongoing share repurchase program. KORS purchased 9.4 million shares, totaling $400 million, during the quarter. To date the company has repurchased 23.2 million shares for approximately $1.2B. Inventory was up 15% YoY attributed to increased European inventory, acceleration of holiday merchandise and the consolidation of MK Panama. The remainder is due to normal growth as the company continues to expand its store base and e-commerce capabilities.

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