Michael Kors’s Guidance and the Resulting Stock Plunge



Michael Kors fiscal 2019 guidance

As we’ve discussed in this series, Michael Kors (KORS) beat market expectations for both its top and bottom lines during the fourth quarter. However, a deeper dive reveals that the results weren’t as impressive as they seemed, which became a concern for investors.

The company’s guidance for fiscal 2019 failed to please investors, too. Let’s first look at the guidance details and then discuss where they fell short of expectations.

Management said it expects full-year sales of $5.1 billion, which reflects an increase of 8% over last year. Around $570 million to $580 million is likely to come from the Jimmy Choo acquisition.

Michael Kors’s comps are likely to stay flat, driving retail sales at a mid-single-digit rate. On the other hand, the wholesale revenue is expected to slide at a mid-single digit rate as the company continues to cut inventory to drive full- price sales.

“Looking to fiscal 2019, we have a number of initiatives planned to drive growth in both of our luxury brands. For Michael Kors, we expect growth to be led by our retail business, as we remain focused on executing initiatives across fashion luxury product, brand engagement and customer experience,” said John D. Idol, chairman and CEO.

Management’s earnings per share outlook, however, fell short of analysts’ expectations. Profits are projected to lie in the $4.65–$4.75 range. In comparison, Wall Street, on average, was expecting $4.74 per share in earnings.

Stock price impact

KORS share price opened at $61.95, around 9% below the previous closing price on May 30. The company reported its results before the bell. The stock fell as much as 14% during the day before finally closing at $60.41, 12.4% below the previous day’s closing.

The company was sitting at YTD (year-to-date) gains of more than 8% before the results. It’s now down 4% YTD.

The Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD) invests 1.3% of its portfolio in the company.

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