Michael Kors Holdings Ltd (KORS) stock is roaring higher in Wednesday’s morning trading after posting better-than-expected fiscal fourth quarter results, while also guiding for full-year fiscal 2017 earnings that exceeded expectations.
Before Wednesday’s earnings announcement, KORS stock was up roughly 7% in 2016, amid secular weakness in other mall retailers such as Macy’s, Inc. (M) and Nordstrom, Inc. (JWN), whose stocks have plunged 50% and 47%, respectively, this calendar year.
With KORS stock up another 4% in morning trading, investors are sitting on some tidy profits this year — something few people were expecting given the aforementioned weakness in the industry.
KORS Stock: A Mixed Bag, With Some Goodies
Fiscal fourth-quarter revenue for the period ended April 2 came in at $1.2 billion, up 10.9% year-over-year and better than the $1.15 billion analysts were looking for. Adjusted earnings per share of 98 cents also beat the 97-cent forecast.
As ever, though, the focus of KORS stock owners was more on the future, which according to the company’s guidance, is somewhat more rosy than anticipated.
KORS guided for fiscal full-year 2017 EPS between $4.56 and $4.64, meaningfully higher than the $4.50 per share consensus forecast. The luxury retailer thinks revenue will be flat year-over-year, which implies top-line sales of $4.7 billion, just under the $4.8 billion average analyst estimate.
The higher EPS figure is no doubt partly due to the approval of a new $1 billion share repurchase program, which replaces the previously approved buyback program, which had $358.1 million left on it. Earnings forecasts assume 171 million weighted shares of KORS stock outstanding, or 9.44 million fewer shares than are currently on the market.
At an average share price of $44, that implies the company will spend $415 million on buying back KORS stock this fiscal year. Given the decision to buy back $200 million worth of its shares last quarter, that seems quite achievable.
As for what will drive KORS stock going forward (besides financial engineering), CEO John Idol highlighted a few areas:
“…we see multiple growth opportunities, including the expansion of our international markets, the growth of our digital e-commerce flagships, the build-out of our men’s business, the launch of Michael Kors ACCESS wearable technology line, and the continued design innovation of our luxury fashion product…”
That sounds nice, but remember one thing: These growth opportunities won’t be growth-y enough to actually boost revenue this year.
Certainly these opportunities won’t have much of an impact in the shorter-term. KORS forecast that its revenue in the current quarter would come in at a range of just $940 million to $950 million — well below the $1.03 billion Wall Street wanted. This appears to be a multi-year strategy, kickstarted by a hefty share buyback program.
That’s fine, and you can tell by the bullishness in KORS stock this morning that investors are appreciative. But with the recent struggles of mall retailers in mind, it would be really nice to see some revenue beats in the quarters ahead.
If and when that happens, its multiple should expand. Trading at just 9.9 times earnings today, KORS stock is a steal if it can deliver better top-line results in the quarters ahead.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
