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KORS Issues Disappointing Guidance after Weak Fiscal 4Q17 Results

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Looking forward on KORS’ top line

Michael Kors’ (KORS) management expects its fiscal 2018 total revenues to touch ~$4.3 billion, which implies a decline of 5.4% at the midpoint.

The company’s retail net sales are expected to remain flat. Its comparable sales are expected to fall in the high single-digit range, primarily due to tighter inventory control and reduction in promotional activity. Wholesale net sales are expected to fall at a rate in the low teens, and its licensing revenues are projected to remain flat.

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Gross margin to improve in fiscal 2018

Michael Kors’ management is looking for an improvement in its gross margin to 60% in fiscal 2018, compared to 59.2% in fiscal 2017. This improvement is mainly driven by a reduction in promotional days and an improved product mix.

The company announced its plans to close 100–125 stores over the next two years to focus on more productive locations and to improve profitability.

KORS’ diluted earnings per share (or EPS) are anticipated to lie in the $3.57–$3.67 range, falling 14.6% at the midpoint, mainly due to higher operating expenses.

In comparison, Wall Street expects earnings per share for Kate Spade (KATE) and Coach (COH) to increase 23.4% and 8.4%, respectively, over the next 12 months.

Fiscal 1Q18 guidance falls short of expectations

For fiscal 1Q18, Michael Kors’ (KORS) management is looking for EPS of $0.60–$0.64 on total sales in the range of $910 million–$930 million. This was far short of Wall Street’s expectations of EPS of $0.80 on total sales of $944 million.

This shortfall in the company’s EPS was followed by an 8.5% fall in KORS’ stock price after its fiscal 4Q17 earnings release. In the next article, we’ll look at the company’s stock performance in more detail.

ETF investors seeking to add diversified exposure to Michael Kors stock can consider the PowerShares Contrarian Opportunities Portfolio ETF (CNTR), which invests 0.7% of its portfolio in the company.

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