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Why Michael Kors Raised Its Guidance after the Fiscal 2Q18 Results

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Michael Kors ups sales guidance

Buoyed by the positive momentum seen in fiscal 2Q18 (ended September 2017), Michael Kors’s (KORS) management gave a revised revenue guidance of $4.59 billion, or 2.1% higher YoY (year-over-year) for fiscal 2018, compared with its the previous outlook of $4.28 billion.

The revised figure includes expected incremental revenues from Jimmy Choo in the range of $215 million–$225 million.

KORS’s management sounded positive about the Jimmy Choo integration, and CEO (chief executive officer) John D. Idol stated during the earnings call: “We believe that bringing together these two iconic brands further strengthens our growth opportunities, increases our product and geographic diversification, and importantly, creates a platform for future acquisitions. We look forward to capitalizing on the great opportunities that lay ahead for our brands and believe that we are well positioned to drive long-term growth as we expand our global fashion luxury group.”

The company, however, continues to expect a high-single-digit decline in sales comps during the year. It also plans to close 40–50 stores during the year to focus on its digital sales channel. Previously, the company had guided 20–40 store closures.

For fiscal 3Q18, the company expects revenues of $1.36 billion–$1.39 billion, compared with the consensus analyst expectation of $1.33 billion.

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Kors raises EPS guidance

Michael Kors’s management revised its fiscal 2018 EPS (earnings per share) guidance as well. The company now expects its adjusted EPS to be between $3.85 and $3.95, compared with its previous guidance of $3.62–$3.72. The Jimmy Choo acquisition is expected to dilute its EPS by ~$0.08.

Furthermore, KORS anticipates a gross margin of ~60% of sales and an operating margin of 16% during fiscal 2018. The company plans to decrease promotional days during the upcoming holiday season considerably.

ETF investors seeking to add exposure to KORS can consider the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD), which invests 1.25% of its portfolio in the company.

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