Michael Kors Beats Expectations

It seems that has become definitive. Michael Kors has presented a better than expected results for the third quarter, in what appears as a turnaround in its business. The company increased revenues by 6.3% in its fiscal third quarter to $1.4 billion, 50 million more than expected by the market consensus. Its net profit fell 3% to almost $295 million, although in this case the fault was the increase in costs resulting from new store openings and boost investments in its online business.

The company, which is primarily known for its bags, had accumulated two years of falling revenues, largely because of the weakness of their business in the US, but also in part by the strong influence of the dollar, which penalized in their accounting the income obtained in other currencies. This took out almost half of its market value.

However, in the third fiscal quarter Michael Kors was able to grow by 0.4% in the US (which represents three-quarters of its total revenue), increasing comparable sales (those in stores open at least one year) by 2%. Meanwhile, gross margins have declined slightly more than one percentage point to 59.5%, although it is still a high level, mainly due to the company did not want to enter the price war of any of its competitors.

These figures were collected with euphoria by investors, who have paid less attention to the forecasts of the company’s last fiscal quarter, but reiterated its objectives for the full year. In particular, it hopes that in the last quarter of its fiscal year earnings to be between $1.13 and $1.15 billion, compared with $1.16 billion expected by the market.

The stock has boosted 17% following the news, reaching almost the target value indicated by the analysts, around $50 per share. The 30 analysts who follow the stock recommend «hold» the shares, although it is expected that in the coming days some improvement in both the recommendation and the price target can occurs.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.