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How Will Michael Kors’s 3Q18 Top Line Look?

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What’s expected from Michael Kors’ third-quarter top line?

Michael Kors (KORS) plans to report its 3Q18 earnings results on February 7. Kors’s management has projected that total sales will range between $1,355 million and $1,385 million, reflecting an increase of 1.3% YoY (year-over-year) at the midpoint.

Total sales include $105 million and $110 million in revenue from Jimmy Choo, which the company acquired in July. Excluding the Jimmy Choo acquisition, sales from the core Michael Kors business are likely to fall 6.7% YoY. Driving this decline is a high-single-digit rate decrease in Michael Kors’s comparable sales. Note that the company has recorded negative comps in ten of the last 11 quarters.

Wall Street has projected a 1.6% YoY (year-over-year) increase in total sales to $1.37 billion for the quarter. KORS did better than Wall Street expectations in the first two quarters of the year.

For fiscal 2018, Michael Kors expects to post revenue of $4.59 billion (+8.3% YoY), including $215 million to $225 million in revenue from Jimmy Choo. Michael Kors’s comps are projected to decline at a mid-single-digit rate for the year.

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Michael Kors’s initiatives

KORS launched its Runway 2020 initiative in June 2017 with the aim of protecting its brand image and returning to growth by 2020. The plan mainly focuses on product innovation, the reduction of promotion days (by 40%), resetting the distribution network, and fleet modernization (renovating 100 stores and closing 100–125 stores).

During the third quarter, the Michael Kors brand is likely to witness a 66% reduction in promotional days compared to the prior year—which would be a significant headwind for 3Q18 retail comps.

The wholesale business is likely to have 67 fewer promotional days than the last year, which would result in a 3Q18 sales decline greater than the low-teens decrease anticipated for the full year.

ETF investors seeking to add exposure to KORS can consider the First Trust Consumer Discretionary AlphaDEX Fund (FXD), which invests 0.9% of its portfolio in the company.

See the next part of this series for a view on Kors’s recent profitability and expectations for the coming quarter.

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