Discount Michael Kors Handbags has been the king of luxury retail of late, posting quarter after quarter of dazzling growth as other high-end vendors (like Coach) have faltered. And while the shiny surface of the company’s second quarter earnings results would indicate that Kors’ reign at the top of the luxury pile is still secure — the retailer beat top and bottom line forecasts — a deeper dive into the report reveals comparable store sales growth that was smaller than what analysts expected. Paired with a modest sales outlook for the rest of the year, the results are leading some to wonder if the Michael Kors Handbag juggernaut is losing steam.
Michael Kors reported Tuesday morning that it recorded $1.1 billion in second quarter fiscal 2015 revenue, a whopping 42.7% increase over the year-ago quarter and a figure that handily beat the $978 million Wall Street estimate. Net income for the quarter came in at $207 million, or $1.00 in earnings per share, up from $145.8 million (or 71 cents per share) reported this time in 2013 and beating the 88-cent per-share analyst consensus.
The company said that company-wide comparable store sales grew 16.4%, a seemingly impressive figure but one that fell short of the 19% growth that analysts had forecast. While comparable sales in Japan and Europe were strong — growing 52.9% and 41.1%, respectively — North American comparable sales grew just 10.8%, missing the 15% analyst forecast.
In a statement issued Tuesday morning, Kors chairman and CEO John Idol focused less on comparable sales growth and more on the top and bottom line earnings results. “Our strong second quarter results reflect our fashion leadership, aspirational product offering and jet-set luxury image that continue to resonate with customers globally,” he said. “Once again, we delivered exceptional performance with both revenue and earnings per share growth in excess of 40%. This ongoing momentum reflects strength across our operating segments and geographies as we continue to expand our presence globally.”
While the Kors brand had a killer start to 2014 — a 59% surge in third quarter fiscal 2014 revenue sent the stock for a 20% gain in early February that, in turn, made Michael Kors (the man) a billionaire — there have been signs that the retailer’s momentum has been slowing. In September, one of its major shareholders sold their stake in the company and the Kors company did not receive any proceeds from the sale. And as Michael Kors Outlet Handbags have become more and more popular, some people, like Forbes contributor Robin Lewis, have questioned whether this popularity would hurt Kors’ cool factor. “Michael Kors, the brand, is becoming ubiquitous, and that’s the kiss of death for trendy fashion brands,” Lewis wrote in July. “Even worse, a rocket-propelled accelerant to ubiquity is its expansion into multiple product categories and sub-brands, so they can compete at all price points.”
The 2015 outlook that Michael Kors issued Tuesday morning would support those growth fears: the company said it expects to record third quarter revenue between $1.27 billion and $1.3 billion and earnings per share between $1.31 to $1.34 per share assuming a “low double digit comparable store sales increase.” This guidance is slightly lower than the $1.3 billion and $1.34 in earnings per share that Wall Street analysts were forecasting for the third quarter. For full-year fiscal 2015, the retailer is projecting revenue between $4.3 billion and $4.4 billion assuming comparable store sales grwoth in the mid teens; full-year earnings per share are expected to fall between $4.13 and $4.18 per share.
Following the release of the earnings results, shares of Michael Kors plunged as much as 11% in pre-market trading action; the stock went on to open more than 7% lower than its Monday close and shares are currently down nearly 8%. Year-to-date the stock is down 11.7%.
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