Michael Kors Holdings Limited (KORS) Stock Is Toxic Despite Q4 Beat

Advertisement

Michael Kors Holdings Limited (NYSE:KORS) wasn’t able to stay aloft back in February following a bottom-line beat for its fiscal third quarter, when it fell as much as 15% to multiyear lows. Unfortunately, investors are being treated to a case of sick deja vu Wednesday morning, as KORS stock holders are taking a beating following its Q4 report.

Michael Kors Holdings Limited (KORS) Stock Is Toxic Despite Q4 Beat

So much for investor patience being rewarded.

The KORS Beat that Wasn’t

Michael Kors’ shares are getting crushed in the premarket session Wednesday, falling more than 7% even though the London-based luxury goods maker beat Wall Street’s fourth-quarter estimates on both the top and bottom lines.

Citing persistent struggles of a weak market that forced the high-end accessories and clothing maker to resort to discounts, KORS reversed last year’s earnings into a loss for the quarter.

Of course, Michael Kors cited similar challenges back in February, which is what sent investors fleeing. Ahead of this quarter, KORS bears, who were betting on another horrid report, had become emboldened, as evidenced by the rising short interest. Some 6.5 million shares were being sold short. It wasn’t a large percentage of the float, but the largest since February, and those bears were on the right side of the trade.

Now, for at least another three months, bulls must reconcile how much more punishment they can handle in KORS stock.

Let’s go through the numbers.

Michael Kors Earnings

In the quarter that ended April, Michael Kors reported a loss of $26.8 million, or 17 cents per share, compared to earnings of $177 million, or 98 cents per share last year. KORS profits were weighed down by $193.8 million of non-cash impairment charges related to underperforming retail stores.

In fairness, KORS’ guidance during the third quarter had indicated that the struggles would continue and the company telegraphed the non-cash impairment charges.

In the prior quarter, not only had Michael Kors forecast same-store sales to decline in the low teens, while analysts were modeling for only a 4% decline, but the company also warned of increased spending. Excluding those charges, however, the company posted EPS of 73 cents, which topped consensus estimates of 70 cents. Notably, this quarter marked eight straight earnings beats.

But as with the prior quarters, the problem continues to be with revenue. Fourth-quarter sales, despite beating estimates, fell 11.7% year-over-year to $1.06 billion from $1.20 billion.

“Fiscal 2017 was a challenging year, as we continued to operate in a difficult retail environment with elevated promotional levels,” CEO John Idol said in a statement. “In addition, our product and store experience did not sufficiently engage and excite consumers.”

Looking ahead, KORS is now expecting first-quarter revenue of $910 million to $930 million. Not only is that well below Street consensus of $941 million, but the company is forecasting same-store sales to decline in the high-single digit range, while estimates called for a 2% to 3.5% decline. And the company sees EPS in the range of 60 cents to 64 cents, versus consensus of 81 cents.

There continues to be a wide disparity between what investors expect and what the company is projecting.

Bottom Line for KORS Stock

Michael Kors shares — now at five-year lows, are off about 16% during a year in which the S&P 500 has gained 8%. The fact that the company’s board has approved a $1 billion share buyback program could be the only thing that keeps KORS elevated above $30.

Still, given the disparity that exists between Wall Street and the company’s execution, KORS’ multiple will decline drastically, meaning the company won’t deploy is cash towards buybacks until it thinks its business has been fully reset.

As such, for now, KORS stock should be avoided, regardless of how cheap it looks.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/michael-kors-holdings-limited-kors-stock-is-toxic-despite-q4-beat/.

©2024 InvestorPlace Media, LLC