Fashion is fickle, and shareholders in Michael Kors Holdings Ltd (NYSE:KORS) are learning that the hard way. The hottest retail stock and luxury brand of the decade has lost that special something that gets supposedly sane people to spend a thousand bucks on a purse, and now earnings and KORS stock are suffering.
Anyone looking for KORS to turn it around on the 2014 holiday shopping season got a cold dose of reality from the Michael Kors earnings report.
The accessories retailer beat Wall Street’s profit estimate by a wide margin, but that was about the only good news to be found. Gross margins contracted while revenue, same-store sales and the company’s outlook all came in below analysts’ estimate.
KORS stock gapped down 5% at the open on the news, and it’s hard to see what can get shares moving in the right direction again, at least anytime soon.
It’s been a fast and cruel drop for what was still a multi-year market darling at this time last year. KORS went public at the end of 2011 and rode its exploding growth and popularity to stunning gains in a very short time. By winter of 2014, Michael Kors stock was up nearly 400% from the $20-a-share IPO price.
And then the mojo went away. Industry observers warned that KORS was overexposed, diluting the brand’s cache. And with too much merchandise chasing too few customers, KORS has had to slash prices in order to move goods.
Cut to today, and KORS stock lost 25% over the last 52 weeks even as the broader market picked up 11%.
KORS Tumbles on Sales, Outlook
For the most recent quarter, KORS earnings rose to $303.7 million, or $1.48 per share, up from $229.6 million, or $1.11 per share, in the year-earlier period. Analysts were looking for earnings of $1.33 per share, according to FactSet.
That’s a big earnings beat, but it did nothing to dispel fears that sales are weakening and that KORS has to offer discounts in order to keep moving merchandise.
Revenue rose to $1.26 billion from $964.8 million, but that was short of the Wall Street forecast for sales of $1.29 billion.
Most troubling was continued weakness in the all-important North American market, where same-store sales came up short. Analysts were looking for growth of 9.3%, on average, but KORS same-store sales — a key measure of a retailer’s health — rose just 6%.
KORS has now reported four straight quarters of decelerating growth — a big no-no for a momentum stock — and the outlook won’t help matters either. For the full year, KORS is expecting earnings per share of $4.27 to $4.30 and revenue of about $4.4 billion. Analysts, however, were modeling EPS of $4.81 and revenue of $5.311 billion.
If you’re fortunate enough to have participated in the amazing run up in KORS stock and you’re still holding on, it looks like time to book those profits.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
