Taking a look at the numbers, KORS posted EPS of $1.32, easily surpassing the $0.95 consensus, while surging by 65% year/year. The outperformance and growth was driven by a couple different factors, including an acceleration on the topline, as well as expanding margins. On the former, revenue increased by 26% year/year to $1.2 bln, also comfortably ahead of the $1.14 bln expectation. The 26% mark was also its strongest performance since 3Q15, when revenue spiked by 31%.
There are a couple key catalysts underlying its growth, but most notable of them is the strength in its footwear category as Jimmy Choo continues to exceed expectations. Specifically, sales at Jimmy Choo stores contributed $172.7 mln (14% of the total), up 60% from last quarter. But not only is footwear providing a spark to the top line, it is also providing a significant boost to gross margin.
For the quarter, Adjusted Gross Margin improved 62.6% compared to 60.3% in the year ago quarter. In addition to the impact of the higher margin Jimmy Choo business, gross margin also benefited from improved MK Wholesale margins as the company was able to ratchet promotional activity down.
The one weakness, though, is that its European business continues to struggle. This is most evident in its MK Retail segment, which saw modest comparable sales growth of just 0.2%. That's a fairly steep drop-off from last quarter's +2.3% figure, and if it weren't for solid results in the Americas and Asia regions, MK Retail would have posted a negative comp for the quarter.
Its wholesale segment saw healthy growth, up 19.5%, but some of this is attributable to a shift in timing in shipments from second quarter into first. One concern for investors is that once KORS begins lapping the more difficult Jimmy Choo numbers next year, KORS' growth may not look nearly as enticing as it does now. That is, unless it can identify and execute another attractive acquisition.
Turning to its outlook, KORS raised its FY19 EPS guidance to $4.90-$5.00 from $4.64-$4.75, above the $4.77 consensus. Taking out Q1's EPS beat, the guidance doesn't look quite as impressive though. In fact, excluding that outperformance, KORS' EPS guidance for the remainder of the year would be below consensus at $4.53-$4.63.
This is due to the company issuing downside guidance for Q2, seeing EPS of $1.03-$1.05 vs. the $1.25 expectation. But this also isn't as bad as it seems because the outlook here takes into account those earlier wholesale shipments that we mentioned above. To put it another way, some of the upside to KORS Q1 results were due to shipment timing, which will be reversed out in Q2. So it's not an expected softening in demand that is causing the downside guidance.
Overall, it was another strong performance from KORS as its footwear business continues to shine. The question going forward is whether the company can keep this momentum going once the positive impacts of the Jimmy Choo acquisition fade.