Most retailers would dream of reporting 16.4% jump in quarterly same-store sales. For Michael Kors (KORS), it wasn’t enough to please investors. Here’s what you need to know about the affordable luxury chain’s latest earnings report.
What you need to know: Michael Kors, which has been public for almost three years now, has since reported strong gains to both revenue and earnings per-share as the company rapidly expands its brand presence in the U.S. And abroad, while also adding more sales at existing locations. And while the latest revenue and per-share earnings growth exceeded expectations, investors appeared to focus their disappointment on same-store sales. That metric climbed by more than 16% in the fiscal second quarter but was less than the 18.9% growth projected by analysts surveyed by Consensus Metrix.
While overall sales jumped 30% in North America, by far the company’s largest regional market, same-store sales were up 10.8%–worse than the 15.2% projected by analysts. Chief Executive John Idol said the decline was due to slower-than-anticipated traffic, a trend that he said other retailers have been experiencing at shopping malls. While many retailers large and small have lamented weak mall traffic, as Coins2Day recently reported, not all U.S. Malls are reeling.
Still, the news sent Michael Kors’s shares down around 8% in recent trading, worse than the broader market’s decline on Tuesday. Shares of Kate Spade (KATE), Coach (COH) and Ralph Lauren (RL) were also dragged lower.
The big number: With the exception of the same-store sales disappointment, Michael Kors’s results were fairly strong. For the quarter ended Sept. 27, total revenue climbed 43% to $1.1 billion while net-income rose to $1 a share from 71 cents a year ago. Both figures were better than expected. Gross margin widened to 61% to 60.8%, a modest improvement that could suggest the company is being forced to sell fewer of its items at lower prices and outlet stores than previously feared. The company also raised its full-year targets and authorized a $1 billion share repurchase program.
What you might have missed: Idol told analysts that Michael Kors has been affected by weaker mall traffic the past couple of quarters, though the decline was “more significant” in the latest quarter. Idol promised Michael Kors isn’t responding by getting more promotional–saying the company is running “the exact same cadence in terms of our promotional activity in our stores that we have for whatever it is, seven years or eight years.”
But Idol struck a very cautious tone about the upcoming holiday season. “We are concerned about mall traffic [in North America],” said Idol. “We do see the consumer being slightly more conservative.”