NEW YORK, United States — Michael Kors Holdings Ltd gave a bleak full-year forecast and said it would shut more than 100 full-price retail stores in the next two years as the luxury fashion retailer struggles in its turnaround strategy.
Shares of the company, which also swung to a fourth-quarter loss, fell more than 6 percent to $34 in pre-market trading on Wednesday.
The upmarket retailer of clothes, handbags, shoes and fashion accessories said it expected revenue of $4.25 billion for fiscal year 2018. Analysts on average had estimated revenue of $4.37 billion, according to Thomson Reuters. The company also forecast a high single-digit drop in same-store sales for the fiscal year.
Total sales fell 11.2 percent to $1.06 billion in the fourth quarter ended April 1, while analysts had expected $1.05 billion.
Michael Kors' comparable-store sales fell 14.1 percent in the quarter, below analysts' estimate of 13.4 percent, according to research firm Consensus Metrix.
“Michael Kors' precipitous drop in sales does very little to reassure that the company's nascent recovery program is on track,” said Neil Saunders, managing director of GlobalData Retail, in a note.
“We believe that Michael Kors is right to cut back on promotions and discounts, just as it is right to restrict distribution through third parties that are not able to communicate the essence of the brand. In this sense, the 17.2 percent decline in wholesale revenues is… a necessary evil to reduce the exposure of the brand in a bid to restore premium status.”
Reduced wholesale distribution should result in a rise in retail sales though, said Saunders, especially given that the market for premium accessories has grown at a reasonable rate. But for Michael Kors, this has not happened.
“The retail figures were catastrophic,” he said. “A 0.5 percent rise in total sales may appear to be a green shoot; however, when put in the context of the 159 stores added over the past year, it is a highly unsatisfactory outcome.”
Saunders warned that Michael Kors could fall further if it does not successfully reinvigorate its offering. “Ranges and collections lack oomph and definition, and across many established stores levels of service and merchandising are lacklustre,” Saunders said.
“The brand is nowhere near where it needs to be if it wants to excite and inspire consumers.”
Net loss attributable to Michael Kors was $26.8 million, or 17 cents per share, in the latest quarter, compared with net income of $177 million, or 98 cents per share, a year earlier.
The company also booked non-cash impairment charges of $193.8 million related to its underperforming full-price retail stores.
Excluding certain items, the company earned 73 cents per share, while analysts had expected 70 cents per share. Michael Kors also said it would buy back $1 billion of shares.
By Gayathree Ganesan, with additional reporting from the BoF team; editor: Anil D'Silva.