Michael Kors’s latest sales results send a message to its doubters
If it seems like you see a Michael Kors purse on every shoulder when you walk down the street or hit the mall, there’s something to your observation: The brand had a years-long hot streak after going public in 2011 when its jet-set-inspired handbags and accessories became a must-have for aspirational luxury shoppers.
But in the last year, investors and fashion insiders have begun to wonder if the brand was shooting itself in the foot by muscling into so many malls and by selling its bags for promotional prices that made them more accessible to the masses. Sales growth slowed dramatically, suggesting that as the brand became more ubiquitous, it was starting to lose some of the exclusive vibe that made it a hit in the first place.
On Tuesday, Michael Kors delivered an earnings report that sent a message to its doubters: There is, it seems, a path forward for the brand to thrive and recalibrate in the face of these perceptions.
Michael Kors said that comparable sales — a measure of sales at its stores open more than a year — were down 0.9 percent in most recent quarter. While that figure still pales in comparison to the blockbuster growth it posted two or three years ago, it is a clear improvement over what was seen in the previous three quarters. And the brand managed to notch improvement during a holiday season that was a tough one overall for the retail industry.
Digging into the report more deeply offers some other reasons for optimism about the brand’s future. For one, the company said its average unit retail price was pressured this quarter, but it was pressured for the right reasons. On a conference call with investors, chief executive John D. Idol said the decline was not driven by having to resort to deep discounts to unload slow-selling merchandise, a tactic the brand has had to employ in the past. Instead, he said it was because shoppers are embracing the trend toward small-sized purses, crossbody bags and small wallets — pieces which logically come with a lower price tag than, say, a tote bag.
So, overall, the company saw a strong increase in the number of items it sold in its core handbag business. That sends a message that Michael Kors is figuring out how to score with something other than the $300 mid-sized handbags that have been its bread-and-butter (and which have also been crucial for rivals such as Coach and Kate Spade.)
Michael Kors has earlier stated that it is pulling back on its wholesale business of selling pieces in department stores in an effort to fight the perception that the brand is too omnipresent and thus lacks cachet. The improved results in its own retail outlets this quarter are, in a way, a validation of that strategic tack. While Michael Kors has previously leaned heavily on department store sales — by one estimate, almost half of its sales come from such outlets — the momentum at its own stores and website offers hope that there is a viable iteration of this business that leans more heavily on direct-to-consumer selling.
Investors sent Michael Kors’s stock up a whopping 25 percent today, a sign that they were pleasantly surprised by the brand’s report. The company said revenue was up 6.3 percent to $1.4 billion in the quarter, and profit was $294 million, lower than the same quarter last year.
The results come just days after a key rival, Coach, reported somewhat improved sales amid an ongoing struggle to polish the image of its overexposed brand. Taken together, the results at Michael Kors and Coach suggest that these accessible luxury titans may be getting closer to putting their brands in the sweet spot between being overexposed and underutilized.