It is time to dump KORS stock altogether or buy more shares? That’s the question investors of Michael Kors Holdings Ltd (NYSE:KORS) are likely wondering today after KORS stock crashed on disappointing fiscal fourth-quarter guidance.
A bottom-line beat in Michael Kors’ fiscal third quarter wasn’t enough for Wall Street — not when the London-based luxury goods maker also forecast weaker-than-expected outlook. KORS stock was crushed Tuesday, falling by about 15% to fresh multiyear lows.
In fact, you would have to go all the way back to January 2012 to find the last time KORS traded at this level. The days of overblown price-to-earnings measures are gone, too — Michael Kors is now priced at just 8 times fiscal 2017 estimates of $4.38 per share.
Is it an overreaction?
Well, with third quarter same-store sales falling by 6.4% ex-currency changes, worse than the 5.4% fall that was expected by analysts, it’s likely those estimates are still too high.
A miss of that magnitude in a closely watched metric suggest it’s going to be several more quarters before KORS stock can show signs of life. Not only is the company struggling to get customers into its stores, but customers are also spending less during each visit.
Digging Into Michael Kors’ Q3 Earnings Report
In the three months that ended December, Michael Kors reported earnings per share of $1.64, up from $1.59 a year ago and slightly above analysts’ estimates of $1.63 per share. But Q3 revenue declined 3.2% YOY to $1.35 billion, missing analysts’ estimates of $1.36 billion.
Geographically, revenue was hurt by a 7.4% decline in the Americas and 7% decline in Europe. This was partially offset by a 89% rise in Asia, thanks mostly to its acquisitions of operations in Greater China and South Korea. But at just $112.3 million, Asian revenue is only a drop in the bucket of $1.35 billion.
What really spooked investors, however, was the company’s guidance for the current quarter.
Michael Kors forecast earnings between 68 cents and 72 cents per share on revenue between $1.03 billion and $1.05 billion. Even the high-end EPS would miss consensus by 20 cents. For fiscal 2017, Michael Kors expects earnings to be between $4.15 and $4.19 per share on revenue of $4.48 billion — much lower than Street forecast of $4.37 per share on $4.55 billion in revenue.
In other words, the company expects to spend tons of money in the quarters ahead.
Kors also expects same-store sales to decline “in the low-teens range” while analysts were modeling just a 4% decline. So KORS really disappointed in every category.
Bottom Line on KORS Stock
Indeed, it can be argued that Michael Kors investors are overreacting today. But while the shares do look cheap at current levels, there are no signs suggesting they deserve to trade higher.
For now, KORS stock investors simply got caught holding the bag.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
