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01/10 16:23
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Despite some challenges like declining operating margins and no expected growth in certain channels this year, the earnings call highlights positive elements. The sale of Versace will reduce debt and potentially boost shareholder returns. The company is focusing on strategic initiatives like store renovations, product innovation, and pricing strategies, which are expected to improve margins and growth in the future. Positive consumer engagement and improved sell-throughs for Michael Kors, alongside the promising outlook for Jimmy Choo, suggest a positive stock price movement in the short term.
Total Company Revenue $797 million, decreased 6% year-over-year. Reasons: Sequential improvement in trends across all regions, but impacted by broad-based softness in wholesale and prior initiatives to reduce wholesale exposure.
Earnings Per Share (EPS) $0.50, exceeded expectations. Reasons: Better-than-anticipated results at both Michael Kors and Jimmy Choo, and a discrete tax benefit.
Michael Kors Revenue Decreased 5.9% year-over-year to $2.8 billion (annualized). Reasons: Store closures negatively impacted retail sales, and wholesale exposure reduction initiatives.
Jimmy Choo Revenue Decreased 6.4% year-over-year. Reasons: Shipment phasing and broad-based softness in wholesale.
Gross Margin 63%, approximately flat year-over-year. Reasons: Higher tariffs negatively impacted gross margin by 30 basis points.
Operating Margin 2.5%, down from 3.7% last year. Reasons: Expense deleverage on lower revenue.
Net Income $60 million. Reasons: Discrete tax benefit and better-than-expected performance at Michael Kors and Jimmy Choo.
Inventory $779 million, increased 10.8% year-over-year. Reasons: Planned earlier receipts of product and foreign currency exchange rates.
Michael Kors Accessories: Positive consumer response to new introductions like Lila, Lalita, and Bryant groups, contributing to sequential improvement in accessories AURs.
Michael Kors Footwear: Introduced new styles embodying iconic branding elements; early performance strong, expanding assortment.
Jimmy Choo Accessories: Strong sales of Bonbon and Sinch bags; Sinch bag is the best-selling day bag of all time. New Curve group introduced with strong initial consumer response.
Jimmy Choo Footwear: Launched the archive collection and Jelly Balarina flat, both showing strong sell-through rates and attracting new customers.
Michael Kors Global Reach: Expanded influencer strategy and social media campaigns, leading to a 9% increase in the global consumer database.
Jimmy Choo Asia Pacific: Named Bai Lu as Asia Pacific ambassador, reaching over 56 million consumers through her campaign.
Store Renovation Program: Plan to renovate 50% of Michael Kors store fleet and key department store locations over the next 3 years to elevate consumer experience.
Store Closures: On track to close 75 underperforming Michael Kors stores in fiscal '26, completing the store rationalization program.
Pricing Architecture: Adjusted pricing to align with historic levels, contributing to improved AUR trends.
Data Analytics: Enhanced marketing strategies and consumer insights, leading to better decision-making and a 9% increase in global consumer databases for both brands.
Revenue Decline: Total company revenue decreased 6% year-over-year, with declines in both retail and wholesale channels. Michael Kors and Jimmy Choo both experienced revenue drops, with Asia showing the steepest regional decline (15% for the company overall).
Wholesale Channel Weakness: Broad-based softness in the wholesale channel continues to impact revenue, compounded by prior initiatives to reduce wholesale exposure, including the closure of 30% of U.S. department store doors.
Tariff Increases: Incremental tariff rates on imports from China, India, and other regions are expected to increase costs by $85 million in fiscal 2026, up from a prior estimate of $60 million. This poses a significant challenge to gross margins.
Supply Chain Costs: Higher tariffs and sourcing challenges are increasing costs, with limited short-term mitigation options. The company plans to address this through sourcing optimization and targeted price increases, but these measures will take time to implement.
Store Closures: The planned closure of 75 underperforming Michael Kors stores in fiscal 2026 could disrupt revenue streams and consumer access in the short term, despite being part of a long-term optimization strategy.
Footwear Revenue Decline: Footwear revenue, particularly in the dress category, saw a double-digit decline, indicating a lack of consumer demand in this segment.
Geographic Revenue Declines: Revenue in Asia declined 15%, and the Americas saw a 9% drop, highlighting regional challenges that could impact overall growth.
Operating Margin Pressure: Operating margins declined year-over-year for both Michael Kors and Jimmy Choo, driven by lower revenue and higher costs, including tariffs and strategic pricing adjustments.
Inventory Build-Up: Inventory levels increased by 10.8% year-over-year, partly due to earlier product receipts and currency exchange rates, which could lead to higher holding costs and potential markdowns if demand does not meet expectations.
Economic Uncertainty: The global macroeconomic environment remains dynamic, adding unpredictability to consumer spending and operational planning.
Revenue Guidance for Fiscal 2026: Total company revenue is expected to be between $3.375 billion and $3.45 billion. Michael Kors revenue is projected between $2.8 billion and $2.875 billion, while Jimmy Choo revenue is expected between $565 million and $575 million.
Revenue Guidance for Second Quarter Fiscal 2026: Total company revenue is expected to be between $815 million and $835 million. Michael Kors revenue is projected between $685 million and $700 million, and Jimmy Choo revenue is expected between $130 million and $135 million.
Gross Margin Guidance for Fiscal 2026: Gross margin is expected to be approximately 60.5% to 61%, reflecting higher tariff rates.
Operating Income Guidance for Fiscal 2026: Full-year operating income is expected to be approximately $100 million, reflecting increased revenue outlook and expense management.
Diluted Earnings Per Share Guidance for Fiscal 2026: Diluted earnings per share are expected to be between $1.20 and $1.40.
Second Quarter Gross Margin Guidance: Gross margin rate is expected to decline approximately 250 to 300 basis points due to the new strategic pricing architecture and greater tariff headwinds.
Second Quarter Operating Margin Guidance: Operating margin is expected to be slightly positive. Michael Kors operating margin is anticipated in the high single-digit range, and Jimmy Choo operating margin is expected in the negative mid-single-digit range.
Capital Allocation Plans: The company plans to prioritize investments in store renovations, technology, and digital enhancements, followed by debt reduction and potential share repurchase programs in the future.
Long-Term Revenue Targets: Michael Kors aims to achieve $4 billion in revenues over time, while Jimmy Choo targets $800 million in revenues.
Fiscal 2027 Outlook: The company expects to return to revenue and earnings growth in fiscal 2027, supported by strategic initiatives and improved trends in the back half of fiscal 2026.
Dividend Program: The company did not explicitly mention any ongoing or planned dividend program during the call.
Share Repurchase Program: The company mentioned that their third priority in capital allocation is to return cash to shareholders via a share repurchase program in the future. However, no specific details or timelines were provided.
The earnings call revealed stabilization in Michael Kors' business and strategic initiatives driving positive full-price comps. However, the company faces challenges with tariffs, outlet repositioning, and geographic uncertainties, particularly in Japan and China. The guidance reflects increased expenses and slightly positive operating margins, but the lack of specific geographic guidance and challenges in key markets temper enthusiasm. The market cap suggests a moderate reaction, leading to a neutral stock price movement prediction.
Despite some challenges like declining operating margins and no expected growth in certain channels this year, the earnings call highlights positive elements. The sale of Versace will reduce debt and potentially boost shareholder returns. The company is focusing on strategic initiatives like store renovations, product innovation, and pricing strategies, which are expected to improve margins and growth in the future. Positive consumer engagement and improved sell-throughs for Michael Kors, alongside the promising outlook for Jimmy Choo, suggest a positive stock price movement in the short term.
The earnings call presents a challenging outlook, with declining revenues, negative operating margins, and high debt levels. Despite some positive indicators in retail sales, the weak financial performance and tariff impacts overshadow these. The Q&A reveals optimism in Michael Kors' retail but lacks clarity on mitigating tariff impacts. The reinstatement of a share repurchase program is positive, but overall, the financial health and guidance concerns lead to a negative sentiment. Given the market cap, the stock is likely to react negatively, potentially in the -2% to -8% range.
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