Michael Kors Reports Higher Retail Sales

Michael Kors Holdings Ltd. on Wednesday reported higher retail sales helped by new store openings, but it lowered growth forecasts for sales and profit as shoppers turn to smaller handbags that cost less.
Its retail sales in the latest quarter rose 7.5% from a year earlier to $532.8 million. Kors opened 116 new stores in the past 12 months, bringing its total to 589 locations around the world. Excluding store openings and closings, retail sales fell 8.5%.
Kors Chief Executive John Idol said sales were hurt by a trend toward purchasing smaller handbags, such as cross-body satchels that are less expensive. Mr. Idol also said the company’s watch business had suffered and fewer shoppers were going to stores, in part due to a falloff in tourists visiting the U.S. in the face of a strong greenback.
Handbag makers like Kors and Coach have faced a slowing market as consumers spend more money on restaurants, travel and entertainment as opposed to goods like accessories and handbags. Growth in handbags sales has been decelerating in the past few years, according to Barclays.
"We believe that the handbag market in North America is, again, growing at low single digit," Mr. Idol said, "but very, very high numbers in terms of units."
Mr. Idol said the average price for products sold in North American retail stores was down 15% in the most recent quarter. He attributed roughly two-thirds of the decline to sales of smaller, less-expensive bags, with the rest coming from deeper markdowns. Kors’s smaller bags like the Jet Set Crossbody sell for about $148, roughly half of what larger bags cost.
Shares of Kors rose 8.3% to $42.56 on Wednesday, its biggest percentage gain since August. The stock is still down 43% so far this year.
Overall profit fell 6.7% to $193.1 million for the company’s fiscal second quarter ended Sept. 26, though the results exceeded the company’s own forecast as well as those of Wall Street analysts.
Revenue rose 6.9% to $1.13 billion, which compares with 43% growth in the year-earlier quarter. The company said revenue was up 12% excluding currency effects.
Licensing revenue decreased 8.1% to $43.2 million in part due to lower watch sales. "The customer has voted a little bit more for the iPhone and less for the watch," Mr. Idol said.​​
Kors plans to contend with the trend toward smaller bags and soft watch sales by rolling out its largest assortment of new products this spring with hopes of enticing shoppers. The company has already begun offering leather watch bands, a move away from the metallic bands that had been popular in recent years; and Mr. Idol said it had been well received.
Kors is facing an additional problem of slowing sales at department stores, where it has a large presence. Mr. Idol said the company plans to ship fewer products to department stores to avoid having a glut of inventory that gets marked down. At the end of September, Kors’s inventory was up 15% from year-earlier levels.
The company lowered its earnings and revenue forecasts for its fiscal year and the current quarter. Kors now expects fiscal third-quarter earnings per share of between $1.44 to $1.48 on revenue between $1.33 billion and $1.35 billion. For the year, it expects per-share earnings in the range of $4.38 to $4.42 on revenue of $4.6 billion to $4.65 billion.