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Analyzing Michael Kors’s 3Q18 Comps

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Michael Kors’s comps continued to decline

As we discussed, Michael Kors (KORS) reported 6.5% YoY (year-over-year) growth in its 3Q18 sales, which stood at $1.44 billion. However, the improvement was primarily driven by the Jimmy Choo acquisition, which added $115 million to the top line.

The company’s core Michael Kors brand reported a 2% YoY decline during the quarter. Wholesale sales plunged 9% and washed away the 1.1% rise in retail sales. Growth in the retail channel was largely driven by new store openings as same-store sales continued to remain negative. Michael Kors’s retail channel has opened 32 net new stores since the end of fiscal 3Q17. Comps declined for the seventh straight quarter and stood at -3.2%. However, the comps were better than analysts’ expectations of a 6.8% fall.

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Performance in North America

Sales declined in the retail and wholesale channels in North America. Retail sales were down 4.5% due to a mid-single-digit fall in sales comps. The decline was a result of Michael Kors’s strategy to reduce promotional days, which were 66% lower during the quarter. The decline was lower than management’s expectations. Brand sales had a strong response during the holiday season.

Wholesale revenue declined 9.3% YoY mainly due to fewer promotional days, which had a negative impact on the sales volume.

Performance in Europe

Europe’s retail sales grew 11.3% due to new store openings and a positive impact from currency. On a constant currency basis, retail revenue rose 2.2% and the sales comps declined at a mid-single-digit rate.

Wholesale revenue declined 9.3% YoY on a reported basis and 17% YoY on a currency-neutral basis. Michael Kors continued to strategically reduce shipments.

ETF investors seeking to add exposure to Michael Kors can consider the iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF). CNDF invests 2.2% of its portfolio in Michael Kors.

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