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Michael Kors Sales Up on Pared Back, Elevated Assortment

Michael Kors Holdings delivered “better than anticipated” full-year results as the company continues to navigate its Runway 2020 transformational plan.

In a nutshell: The group credited freshness with the Q4 performance for the Michael Kors brand, which in accessories resulted in an assortment that consisted of 65 percent new styles. That newness combined with less product in the market overall had the desired effect, the company said.

“We actually saw comparable sales growth at our retail partners in fiscal Q4, which was very encouraging, and that’s with less inventory in their stores and that just reflects better response from the consumer on the elevated product that we’ve been delivering into the stores,” CEO and chairman John Idol said during the earnings call. “We feel so good about all the things that are happening along with our partners that we feel we need less inventory to do that. That just means less markdown, that means a much healthier perspective from the consumer of how our brand is positioned. And based on that, we are going to have less wholesale shipments in the channel. We think that’s the right thing for us to.”

Michael Kors announced that it doesn’t anticipate wholesale will return to growth until fiscal 2020, in fact revenue will decline in the Americas and Europe due to the reduced product flow into the channel in pursuit of more full-price sell-throughs.

The brand closed 48 stores during the quarter and opened 50, which were all primarily located in Asia. It will add 60 more in that region going forward. And the brand group plans to accelerate the pace of renovations, with 200 stores complete in the next two years.

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For Jimmy Choo, the company expects revenue to increase by 10 percent in FY19, led by accessories. MKH said to expect 30 net new stores during the year, again primarily in Asia.

Looking ahead, Michael Kors anticipates revenue to come in around $1.14 billion with flat comp sales in Q1. The company expects earnings between 90 cents and 95 cents during the period.

Sales: Michael Kors reported company-wide revenue of $1.18 billion during the fourth quarter, which includes $107.9 million from Jimmy Choo. The results represent a 10.8% increase over the prior-year period.

The company said retail sales were up 4.4% to $600.6 million on a 2.3% increase in comps. Accessories, footwear, ready-to-wear and men’s were highlighted as the leading categories. Wholesale revenue sagged by 3.2% at $441.3 million, which the group attributed to its strategic pullback from the channel. The licensing business dropped by 11.1% to $29.7 million.

Earnings: The company reported adjusted net income of $96.5 million, or 63 cents per diluted share, compared to $118.0 million, or 73 cents per diluted share in the fourth quarter of FY 2017.

CEO’s take: “Fiscal 2018 was a pivotal year for Michael Kors holdings, and we’re proud of the results we delivered. We ended the year significantly ahead of plan for our Runway 2020 initiatives, successfully completed the integration of Jimmy Choo, and began to make strategic investments to drive accelerated growth in the brand,” Idol said. “We look forward to building on our momentum in fiscal 2019 and are on track to meet the long-term targets for both brands as we continue to lead in fashion innovation, deliver glamorous product, engaging brand communications and provide an exceptional customer experience for both Michael Kors and Jimmy Choo. Additionally, we will continue to explore acquisitions to complement our existing luxury portfolio. Overall, we believe that we are well positioned to deliver long-term growth and enhance shareholder value.”