Michael Kors outperforms earnings expectations
Michael Kors (KORS) reported a 13.7% decline in fourth-quarter earnings, which stood at $0.63. The company, however, delivered better than Wall Street expectations of a 17.8% YoY (year-over-year) decline to 60 cents.
How were the margins?
The fourth-quarter consolidated gross margin increased by 220 basis points to 60.4% of sales. A favorable channel mix, higher retail and wholesale gross margins, and the benefit (80 basis points) from the Jimmy Choo acquisition—a higher-margin business—drove this improvement.
The retail gross margin of the Michael Kors business improved by 110 basis points, fueled by strong international growth and a lower cost of sales. The wholesale gross margin increased by 150 basis points, reflecting higher sell-throughs.
Tapestry (TPR), which reported its quarterly results in early May, recorded a 190 basis point decline in its gross margin. The deterioration was mostly a result of the Kate Spade integration (~120 basis points), which has a lower gross margin profile.
However, Tapestry has a higher gross margin than KORS. Its trailing-12-month gross margin stands at 66%, compared to 60.6% for KORS.
Despite an improvement in its gross margin, Michael Kors’s operating margin continues to decline. Its adjusted operating margin fell 110 basis points during the quarter to 13% of sales, mainly due to accelerated investments in the Jimmy Choo brand. We saw the sixteenth consecutive quarter of operating margin declines for the company.