Michael Kors turnaround lags on sales, wholesale declines

February 8, 2017

Dive Brief:

  • Apparel and accessories maker Michael Kors' efforts to reinvigorate its brand continued to falter in its fiscal third quarter: The handbag retailer missed sales expectations for the period, with total revenue decreasing 3.2% to $1.35 billion from $1.40 billion in the year-ago period.

  • Michael Kors' Q3 2017 same-store sales decreased 6.9%; adjusted for currency fluctuations, they fell 6.4%. Retail net sales increased 9.2% to $836.7 million, driven by 193 net new store openings since fiscal Q3 2016. The company's decision to pull back on department store sales ground down its wholesale business in the U.S. in particular: In the Americas, Q3 wholesale sales decreased 15%, in Europe they fell 12%, and overall Q3 wholesale net sales decreased 17.8% to $473.1 million, while licensing revenue decreased 22.9% to $43.0 million.

  • Michael Kors CEO John Idol also said that the company is looking at possible acquisitions and that, if there’s a good fit, it “probably won't do anything small.” Michael Kors, Coach and other unnamed overseas companies reportedly are mulling bids on handbag and accessories retailer Kate Spade & Co.

 

Dive Insight:

"[Michael Kors] has a lot more work to do before it gets back on track,” GlobalData retail analyst Neil Saunders said in an email to Retail Dive. “The numbers provide a marked contrast to those of Coach, a company going through a similar brand reinvention, which had a much more positive third quarter.”

Getting Michael Kors back on track will require improving not just its handbag designs but also its stores, according to analysts at boutique retail investment research firm Jane Hali & Associates.

“[We believe] the downfall of Kors has reported is due to the lack of newness and updating not only their handbags, but also their store experience,” Hali said in a note emailed to Retail Dive. “[We have] felt their stores have lacked excitement and believe that has a been a key factor for their lowered footfall. 'Buy online, collect in store' has been a key success across the retail market, and Michael Kors has announced it will just be launching this strategy across their stores in [North America] within the year.”

Idol told analysts Tuesday that the company’s shift from department store discounts will take time, adding it will continue to suffer some negative consequences into fiscal year 2019. “This is a very aggressive approach,” Idol said, according to a transcript from Seeking Alpha. “We don't believe any of our competitors are taking this level of stance as it relates to walking away from the promotional activity.” Idol also blamed declining wholesale business in the Americas on slowing department store traffic and Kors' own pullback have hit those sales, while factors including Brexit, terrorist attacks and elections impacted its overseas initiatives.

Idol maintains Michael Kors remains on the right track. “[W]e believe that the $300 handbag category is a very big opportunity. And so what we want to do is create value,” he said. “When [a customer] walks in the door and she sees an amazing design, she doesn't have to wait for a coupon or sale or anything else. She's stimulated by what she's seeing, and we clearly saw that with our Mercer handbag collection, which was non-promotional the entire fall season, and was basically our number one selling collection. So she responded to the design. She responded to the fact that it was full price, but she also responded to the fact there was great value there in that collection.”

That’s promising, but there’s more work to do, Saunders said. “As much as we believe that Michael Kors is headed in the right direction, and that its new lines are generating interest, we maintain our view that it has much more work to do in reconnecting with customers who have been alienated by the over-expansion of the brand. As of yet, it is simply not exciting customers in the same way that Coach or Kate Spade are.”

Original post here

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