Is the jet-set luxury brand losing altitude? Michael Kors Holdings Limited (KORS) announced second quarter financial results on Tuesday that beat Wall Street expectations of top- and bottom-line performance but failed to deliver in terms of comparable or same-store sales growth, sending some investors scurrying for the emergency exits.
The stock plunged 8.4% to $71.42, its biggest one-day drop since the company went public in December 2011.
Total revenue in the three months ended September 27 increased by an impressive 42.7% to $1.1 billion, beating expectations of $978 million. Retail net sales rose 39.4% to $495.6 million, driven by 121 net new store openings since the end of the prior year’s second quarter. Gross margin expanded by 20 basis points to 61 percent. Net income was $207 million, or $1 per share, up from $145.8 million, or $0.71 per share, in the prior year period, and $0.11 above Wall Street’s expected EPS of $0.89.
Comparable store sales rose by 16.4%, well below previous quarterly increases and Wall Street expectations of a 19 percent jump. Wholesale net sales increased 46.1% to $514.1 million, and licensing revenue, for sales of products including watches and jewelry, jumped 42.8% to $46.9 million.
North American revenue growth was 29.8%, while total sales in Europe and Japan more than doubled to $238 million and $16.5 million, with comps up 41.1% and 53 percent, respectively. North American comps increased by 10.8%, compared to the 15 percent hoped for by analysts.
While total revenue and earnings beat estimates, the comparable store sales results renewed fears that the brand’s popularity has peaked and a slowdown is under way. Sportswear Holdings Ltd., Michael Kors’s largest shareholder and among its earliest backers, announced plans in September to sell its entire stake–worth almost $1 billion–in a secondary offering, following an almost fourfold gain in the stock since its IPO. Since then, the stock has declined by almost 10 percent, bringing its year-to-date drop to over 12 percent.
For the fiscal year-to-date period, total revenue increased 43.2% to $2 billion. Retail net sales rose 43.2% to $975.8 million, and comparable store sales increased by 20.2%. Wholesale net sales were up 43.3% to $920.9 million, and licensing revenue jumped 37.6% to $79.1 million. Gross margin grew by 30 basis points. Net income was $395 million, or $1.90 per share, up from $270.8 million, or $1.32 per share, in the prior year period.
For the third quarter of fiscal 2015, the company reduced same-store sales and earnings guidance, and now expects total revenue to be in the range of $1.27 billion to $1.30 billion. This assumes a low double digit comparable store sales increase. For fiscal 2015, the company now expects total revenue to be in the range of $4.3 to $4.4 billion. This assumes a comparable store sales increase in the mid teens. Diluted earnings per share are now expected to be in the range of $4.13 to $4.18 for fiscal 2015.
The company also announced that it will move its headquarters from Hong Kong to London, and take direct control of the Michael Kors business in South Korea from its current partner, Simone FC, by the early part of 2016. Michael Kors’ board of directors has authorized a $1 billion share repurchase program.