After a Tough 2017, Michael Kors Could Face a Difficult 2018



2017 performance review

Fiscal 2017 was a tough year for Michael Kors (KORS). The company posted a year-over-year (or YoY) sales decline in all four quarters. For fiscal 2017, total sales fell 4.6% YoY to $4.5 billion. Management blamed increasing competition and a highly promotional environment for the slowdown.

Close competitor Coach (COH), however, recorded a 3.9% YoY jump in LTM (last-12-month) sales, which stood at $4.5 billion. The company is in the process of implementing a transformation plan in order to push sales and margins and better compete in the fiercely competitive US retail landscape.

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Talking about KORS’ wholesale and retail segments

Both the retail and wholesale businesses remained under pressure in 2017. Comparable-store sales stayed negative through all four quarters, bottoming with a 14% decline in 4Q17.

Wholesale’s performance was even worse. The segment recorded a 17% decline in sales, largely driven by the company’s decision to reduce its departmental store footprint and promotional days.

Looking into 2018

Management expects a further slowdown in fiscal 2018. The top line is forecast to contract more than 5% to $4.25 billion, mainly driven by to tighter inventory control and reduction in promotional days.

Wholesale net sales are projected to decline at a low-teens rate. Retail sales are likely to remain flat with a high single-digit rate decline in sales comps. The company also plans to close 20 to 40 full-price stores in fiscal 2018 and another 80 to 85 stores next year.

For the first quarter of 2018, management has predicted a 6% to 8% decline in the top line. Sales comps are likely to fall at a high single-digit rate during the quarter.

ETF investors seeking to add exposure to KORS can consider the iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF), which invests 1.6% of its portfolio in the company.


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