Michael Kors Holdings Ltd (NYSE:KORS) stock is getting absolutely destroyed in early trading on Wednesday, after KORS earnings came in below expectations and the luxury retailer’s quarterly and full-year guidance both severely missed consensus estimates.
Trading down by 20%, Michael Kors stock is on pace for its worst single-day performance ever.
Formerly one of the highest-flying retail stocks on Wall Street, KORS stock has gone out of style in a hurry: Even before today’s miserable earnings report, KORS stock had fallen 19% year-to-date and 37% in the last year. And it’s going to get a lot worse.
KORS Repeating Coach’s Sins
Just after the the KORS IPO in late 2011, rival Coach Inc (NYSE:COH) started to feel the pressure. Michael Kors was taking market share, Coach had expanded too rapidly, its margins were falling, and it was committing the cardinal sin in retail: same-store sales declines.
The COH stock price now sits at less than half of its March 2012 peak. The snowball, once it starts rolling, is tough to stop.
And anyone who owns KORS stock is about to find that out the hard way. A haircut like today’s hurts, but a rational investor should always cut their losses if all signs point to things getting even worse … as they are with this stock.
KORS guided for earnings per share between $4.40 and $4.50 per share in fiscal 2016 on revenue between $4.7 billion and $4.8 billion; both figures were well below consensus expectations for EPS of $4.70 and revenue of $5.05 billion.
But that’s not even the worst part.
North American same-store sales in the fiscal fourth quarter plunged by 6.7%. Analysts expected a 4.4% rise. To add insult to injury, the fall of KORS is coming rather rapidly; in the prior quarter, North American same-store sales actually rose by 6%, meaning there was a net downside swing of 12.7% percentage points in the past quarter alone.
This is horrible news for shareholders, especially as last quarter’s meltdown was preceded by four straight quarters of declining same-store sales. CNBC even speculated in March that Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) search trends might be predicting a dreaded same-store sales decline for Michael Kors.
Both Coach and Vera Bradley, Inc. (NASDAQ:VRA), saw same-store sales first decelerate and then ultimately decline two years after New Yorkers first started Googling the brands less frequently than America was searching them. The article notes that that dreaded inflection point happened about two years ago with Michael Kors.
The trend is happening in a large part because the Michael Kors brand has diluted itself by expanding too rapidly. So when CEO John Idol reassures investors that “new store openings” are part of the company’s growth plan, he’s delusional. When same-store sales are declining, you want to close underperforming stores, especially in luxury retail, where so much of your pricing power comes from perceived rarity.
The only rare thing after this quarterly earnings report is the chances of a Michael Kors stock rally. I sold my own shares in the handbag-maker (which I had owned for years) last week on concerns that the brand was weakening, and I suggest you do the same after today’s results confirm those fears.
As of this writing John Divine was long shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
