These Strategies Boosted Michael Kors’s Earnings in Fiscal 2Q18
Kors’s fiscal 2Q18 EPS beat
Michael Kors (KORS) reported its fiscal 2Q18 results on November 6, 2017, posting better-than-expected profits as its adjusted EPS (earnings per share) rose 37% YoY (year-over-year) to $1.33—about 50 cents higher than the consensus. Despite ongoing headwinds, Kors has missed its consensus bottom-line expectations only once in the past 16 quarters.
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What drove fiscal 2Q18 margin improvement?
Kors’s fiscal 2Q18 gross margin stood at 60.2% of sales, compared with 59.2% in fiscal 2Q17. The company benefitted from a 1.6% jump in its retail gross margin, which was driven by a sales mix-shift toward international sales and a lower cost of goods. Its wholesale gross margin remained flat.
On a comparative basis, Michael Kors performed better than peers Ralph Lauren (RL) and Tapestry (TPR), which posted gross margins of 59.8% and 59.3%, respectively, in their most recent quarters. All three companies have benefitted from recently introduced restructuring plans aimed at combating the challenging retail market and improving their brands’ positions in the luxury retail space.
In fiscal 2Q18, Michael Kors successfully translated its higher sales into improved operating profitability. KORS posted an adjusted operating margin of 20.7% of sales, or 150 basis points higher than the comparable period last year. Ongoing initiatives such as closing underperforming stores and favorable changes in sales mix significantly bolstered earnings in fiscal 2Q18.
ETF investors looking for exposure to KORS can consider the First Trust Consumer Discretionary AlphaDEX Fund (FXD), which invests 1.1% of its portfolio in the company.