Michael Kors expects sales to keep soaring

Tue Jun 12, 2012 12:17pm EDT

(Reuters) - Michael Kors Holdings Ltd (KORS.N) reported a stronger-than- expected fourth-quarter profit, fueled by growth in its own chain of stores and at department stores, and the designer clothing and apparel company gave a sales and profit forecast that handily beat Wall Street forecasts.

The company, which has benefited from a consumer appetite for "affordable" luxury and its founder's prominence as a judge on the long-running TV fashion show "Project Runway," said on Tuesday sales could rise as much as 45.5 percent this year.

"Kors is a proven brand that is in the early stages of expansion and is taking (market) share," Nomura Securities analyst Paul Lejuez said in a research note.

Michael Kors founded the company in 1981 but it was only in 2006 that the company began to open its own stores.

The bulk of its sales come from North America, where its fast growth has come at the expense of rivals such as Coach Inc (COH.N). Michael Kors forecast North American same-store sales will jump 20 percent this fiscal year. In contrast, Coach's growth in the region has cooled a bit.

Michael Kors expects company-wide full-year sales of $1.7 billion to $1.8 billion, with a profit of $1.08 to $1.12 per share.

Wall Street analysts were projecting sales of $1.69 billion and a profit of 98 cents per share this fiscal year, according to Thomson Reuters I/B/E/S.

Michael Kors' retail sales last quarter soared 80.3 percent to $172.2 million, helped by the addition of the 71 new stores. Sales at its stores open at least a year rose 36.1 percent. Some three quarters of its business came from accessories like handbags, watches and eyewear.

In its wholesale business, which includes sales to luxury chains such as Nordstrom Inc (JWN.N) and Saks Inc SKS.N, and is still its biggest segment, revenue rose 45.5 percent.

The company has been building out more "shop in shops" in department stores and said it would continue to do so, given how much those boutiques, which typically give a brand more visibility and control over how it sells to shoppers, contribute to sales.

Some 45 percent of sales currently come from its own retail stores. Eventually, that should rise to 70 percent as the company opens more of its own shops, Chief Executive John Idol said on a call with analysts

Michael Kors, which began listing its shares in December, reported net income of $43.6 million, or 22 cents per share for the quarter that ended March 31, up from $17.4 million, or 10 cents per share, a year earlier.

Excluding a one-time reimbursement of costs linked to its IPO, Kors earned 21 cents per share, beating analyst forecasts of 17 cents.

Michael Kors expects first-quarter same-store sales to be up 35 percent and profits of 18 cents to 20 cents per share, above Wall Street forecasts of 17 cents per share.

Michael Kors' shares rose 2 percent to $38.94 in late morning trading. That is just under double its IPO price, but still 21 percent off the stock's all time high in March. Michael Kors is owns 8 percent of his namesake company's shares.

MORE RETAIL, CHINA EVENTUALLY

Michael Kors, which last year opened 71 stores of its own, bringing its total to 237, has the potential to eventually have 600 stores worldwide, Idol said.

That includes 400 stores in North America. And it includes 100 stores in Europe, up from about 29 now. Michael Kors said it has not been affected by the austerity and anxiety over the euro crisis that has cast a pall over luxury sales in Europe, which generated just less than one-tenth of sales last year.

Last month, Ralph Lauren Corp (RL.N) said the pace of its sales gains would slow in part because of Europe's problems, while Tiffany & Co (TIF.N) reported flat same-store sales last quarter.

The company is also in the early stages of expanding into Asia, including greater China, where Michael Kors has four stores operated by licensees. That market is the fastest growing luxury market in the world.

In Southeast Asia, there are 10 Michael Kors stores. The company said Japan could eventually be a top market.

"We are taking a long-term view for development in this region," Idol said on the conference call.

(Reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe, Maureen Bavdek and Sofina Mirza-Reid)

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