Michael Kors (KORS 36.27) bills itself as a global luxury fashion brand. Today, though, it is simply being billed as a disappointment by investors who are digesting the specialty retailer's fiscal fourth quarter results and outlook.
Shares of KORS are trading 7% lower in pre-market action. That will qualify as a surprise for some considering Michael Kors topped analysts' depressed revenue and earnings per share expectations for its fiscal fourth quarter, yet that surprise factor gets neutralized after accounting for the underlying weakness in the fourth quarter numbers and the company's guidance.
Michael Kors also uttered the dreaded phrase, saying fiscal 2018 will be a "transition year." That's another way of saying it isn't expecting a quick turnaround in its business and that investors should lower their expectations.
It's not an uplifting consideration by any means considering Michael Kors reported a 4.6% decrease in total revenue for fiscal 2017, an 8.3% decrease in comparable retail sales, and a 5.4% decline in adjusted earnings per share of $4.24.
For fiscal 2018, Michael Kors is projecting revenues of approximately $4.25 billion, comparable retail sales to decrease in the high-single digit range, and earnings per diluted share to be between $3.57 and $3.67.
Fiscal 2017 was punctuated by a fourth quarter performance that included an 11.2% decrease in total revenue of $1.06 billion, a comparable retail sales decline of 14.1%, and a 28% decline in adjusted earnings per share of $0.73. It was reported that retail net sales increased 0.5% to $575.3 million while wholesale net sales decreased 22.8% to $456.1 million and licensing revenue dropped 6.2% to $33.4 million.
Like so many other accessories retailers, Michael Kors was plagued by weakness in mall-based traffic and increased competition, both from traditional competitive sources like Coach (COH) and non-traditional sources like Amazon (AMZN).
Management noted that fiscal 2017 was adversely impacted by elevated promotional levels. However, management also conceded that its own product and store experience did not do enough to engage and excite its customers.
In recognition of the industry and company-specific challenges it is facing, Michael Kors said it will be undertaking initiatives in fiscal 2018 that include expanding the fashion innovation for its accessories assortments, right-sizing its store fleet, and elevating its store experience. That effort will include closing 100 to 125 full-price retail stores over the next two years, with one-time costs of approximately $100 - $125 million for the store closures over that period.
Michael Kors emphasized that it will be establishing a new baseline in the fiscal 2018 transition year before returning to long-term growth. Fittingly, its stock, which is down 15.6% year-to-date and down nearly 65% from the all-time high it hit in 2014, is also still searching for a baseline of its own.