Michael Kors posts strongest sales growth in a year

Michael Kors has announced they will be cutting back on sales of their handbags and accessories to retailers in North America as they try and preserve their luxury identity. The brand has faced a number of challenges over the past months as it struggles to retain its position as a luxury brand.

However, despite the company's woes of a luxury slowdown, Michael Kors recently posted its strongest quarterly sales growth in over a year. Total revenue increased 10.9 percent to 1.2 billion US dollars from 1.1 billion US dollars in the fourth quarter of fiscal 2015. On a constant currency basis, total revenue increased 11.7 percent.

During the same period, which ended April 2, 2016, retail net sales increased 22.0 percent to 572.6 million US dollars, driven primarily by e-commerce sales from the Michael Kors' digital flagships. The company opened 142 net new store openings since the end of the fourth quarter of fiscal 2015. Comparable sales during the period increased 0.3 percent.

Michael Kors reports strongest quarterly sales growth in over a year

Based on a constant currency basis, retail net sales increased 23.4 percent, and comparable sales grew 1.5 percent. Wholesale net sales increased 3.5 percent to 590.5 million US dollars and on a constant currency basis, wholesale net sales grew 4.0 percent. However, licensing revenue decreased 13.6 percent to 35.6 million US dollars.

Total revenue in the Americas increased 4.6 percent to 879.1 million US dollars on a reported basis and European revenue grew 15.6 percent to 254.1 million US dollars. Revenue in Asia increased 216.4 percent to 65.5 million US on a reported basis, and gross profit increased 10.5 percent to 697.2 million US dollars during the fourth quarter.

For the fiscal year which ended April 2, 2016, Michael Kors saw total revenues increase 7.8 percent to 4.7 billion US dollars from 4.4 billion US dollars in fiscal 2015. Retail net sales increased 12.2 percent to 2.4 billion US dollars. Comparable sales declined 4.2 percent.

Wholesale net sales increased 3.8 percent to 2.1 billion US dollars and on a constant currency basis, wholesale net sales grew 6.8 percent. Gross profit increased 5.6 percent to 2.8 billion US dollars, and as a percentage of total revenue was 59.4 percent. Income from operations hit 1.2 billion US dollars, 24.9 percent of the total revenue.

At April 2, 2016, Michael Kors operated 668 retail stores, including concessions, compared to 526 retail stores, including concessions, at the end of the same period last year. The company opened 201 additional retail stores, including concessions, operated through licensing partners. Shares were up 7.5 percent in trading on Wednesday afternoon at 45 dollars and 93 cents.

"We are pleased with our financial and operational accomplishments during the fourth quarter and fiscal year 2016, as we delivered continued growth across regions despite the challenging retail environment," commented John D. Idol, the Chairman and Chief Executive Officer of Michael Kors in a statement. "In addition, we elevated our product offerings and refreshed our marketing campaigns, both of which were met with positive response from our customers. We also continued to make strategic investments in our business. As these initiatives began to take hold, we ended the year on a strong note, with revenue and earnings per share ahead of our expectations in the fourth quarter, as well as for the full year."

"Looking ahead, we see multiple growth opportunities, including the expansion of our international markets, the growth of our digital e-commerce flagships, the build-out of our men’s business, the launch of Michael Kors ACCESS wearable technology line, and the continued design innovation of our luxury fashion product, which we believe will enable us to deliver sustainable earnings growth and continue to return value to our shareholders."

The strategy is seen as a sensible one in a retail market where department stores are falling out of favor. Retailers like Macy's and Nordstrom are offering steep discounts on apparel and accessories, two of their main sources of revenue, as shoppers are investing more in electronics, home, travel, and cars. Reports say that Nordstrom is carrying less Michael Kors bags, but Nordstrom has denied this.

Michael Kors shares up 7.5 percent in trading on Wednesday

Currently, the Michael Kors Cynthia satchel is 194 dollars, down from the regular price of 348 dollars, at Macy's. Despite the discounted merchandise, Michael Kors sales still increased 10.9 percent to 1.2 billion dollars in the quarter ended April 2, according to Thomson Reuters. This surpassed analysts estimates of 1.15 billion dollars.

However, the reduction of their handbag prices is expected to pull down their sales for the current quarter between 940 million and 950 million dollars, down from 986 million dollars last year. If sales dip to this range, it will be the first time a sales drop has been seen since the company launched their IPO in 2011.

The company is expecting a sales decline in the high-teens for their wholesale business for fiscal year 2017. The share of the business overall is expected to drop to 25-30 percent from nearly 50 percent last fiscal year. The net income attributable to Michael Kors fell 3 percent to 100 million dollars, or 98 cents per share, beating estimates of 96 cents per share.

Michael Kors also said it would buy back 1 billion dollars in shares, and announce the acquisition of Michael Kors (HK) Ltd, its licensee in China and several Asian regions for 500 million dollars. Idol believes that the brand is gaining great momentum across China, so they need to take advantage of this for international growth.

The Americas represent about three quarters of the total revenue by Michael Kors.

Photo: michaelkors.com and Facebook