Michael Kors’ Results Send Message to Skeptics

Michael Kors Holdings, the handbag and accessories maker posted a comparable sales drop that was much smaller than had been expected, allaying the concerns of some investors that the business growth has come to a stop.

Kors shares surged by up to 19% their biggest percentage gain for a single day in the past two years, after the third quarter results were posted by the company and easily beat Wall Street expectations.

Kors was once the hottest affordable luxury name in the market and had posted sales growth in the double digits until 2014, helped in part by its great success in sales of $300 bags and hype of former TV show judge of Project Runway and founder Michael Kors.

However, in a bid to sustain its sales growth, the company expanded rapidly across North America in a move that made its handbags become commonplace for women who are fashion conscious.

John Idol the CEO of Kors said the industry became too focused on the handbag price point of $300.

Kors is innovating aggressively now as well as expanding its presence online, which helped to drive sales during the holiday quarter.

Its sales, at its established stores were down by 0.9% during the quarter that ended on December 26, compared to a drop of 4.5% that had been forecasted.

Sales increased by 2% on a constant currency basis marking the first increase in the past four quarters.

While fashion trends shift towards the cross body lower priced bags as well as satchels reduced the average revenue per unit during the third quarter, it also helped the company see a growth in double digit percentage in units sold.

In North America, the company’s largest market, comparable sales rose in the low single digits.

In Europe, the second largest market, revenue increased by 14.2% during the quarter, amidst austerity measures, which have otherwise tightened spending across the region.

Overall revenue increased 6.3% to end the quarter at $1.4 billion with attributable net income dropping to $294.5 million compared to $303.6 million in the same quarter one year ago.

On a share basis, earnings increased from $1.48 to $1.59.

 

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