Fears of Michael Kors slowdown spook analysts as share price takes a beating

Michael Kors shares were left battered late Wednesday as the golden brand of aspirational luxury saw its stock plunge over 24%. So why the hammering?

Sure, Q4 profits ($182m) and sales (over $1bn) would be envy of many as demand for its fashion accessories around the world appears to be holding up.

But analysts and investors were expecting a rallying call in the face of various headwinds that many in its peers are also facing and beating. All they got was an outlook that fell heavily short of expectations. They were especially spooked by a fall in comp sales – especially in its core North American market – on the back of fears that a brand which has grown so big so fast, must slow down at some point and is in danger of over-exposure.

So let’s look at those numbers in detail. For the three months ended March 28, Michael Kors Holdings earned $182.6m/90 cents per share, up from $161m/78 cents a year earlier.

Adjusted earnings were 96 cents per share ahead of the 90 cents analysts had predicted.

Total revenue increased to $1.04bn from $882bn as sales grew in Europe, Japan and North America. The results met the expectations of analysts.

Full-year profit hit of $881m/$4.28 per share on revenue of $4.4bn.

Now the story gets darker. Same-store sales fell 5.8%, or down 1.7% currency neutral, hurt by a 6.7% dip in North America.

For the year, Michael Kors anticipates earnings of $4.40-$4.50 per share and revenue ranging $4.7bn-$4.8bn. Analysts expected $4.67 and $5.03bn, respectively.

For Q1, earnings the forecast 74-78 cents per share on revenue spanning $930m-$950m also failed to impress with analysts wanting $1.03 and $1.09bn.

CEO John Idol appeared to put on a brave face, saying: “While we were faced with a number of headwinds in the fourth quarter, we were pleased with the strong performance across our segments and geographies.

“We believe that our results demonstrate the strength of the Michael Kors brand… as our luxury products continue to resonate with consumers worldwide.”

He didn’t really go into the details analysts, investors (and, indeed, the rest of the industry) wanted – which was just how demand for those ubiquitous bags and watches is holding up and just how the company will handle the slowdown. Watch this space.

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