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Retail

Michael Kors comparable sales drop more than expected

(Reuters) - Michael Kors Holdings Ltd KORS.N reported a bigger-than-expected drop in quarterly comparable sales as fewer shoppers visited malls and a strong dollar discouraged tourists from spending on its handbags and accessories.

Shares of Kors, which also forecast current-quarter sales below analysts’ expectations, were slightly higher in volatile trading on Wednesday after falling as much as 3 percent earlier.

U.S. retailers have been hurt as shoppers turn to the internet, reducing their visits to malls.

Luxury goods makers such as Kors and rival Coach Inc COH.N have also tightened supply to department stores to avoid deep discounting on their products, which they fear will erode their brand value.

From next year, Kors will stop participating in store-coupon promotions by North American retailers, Chief Executive John Idol said. “We will be removing ourselves from all of the department store ‘friends and family sales’ as well.”

Sales in Kors' wholesale business, which supplies to department stores including Macy's Inc M.N and Neiman Marcus, declined 7 percent in the first quarter.

Sales at stores open more than a year slumped 7.4 percent, a drop bigger than the 4.7 percent analysts had expected, according to research firm Consensus Metrix.

The logo of U.S. designer Michael Kors is seen at a branch office at Bahnhofstrasse in Zurich, Switzerland June 23, 2016. REUTERS/Arnd Wiegmann - RTX2HZHR

Kors forecast revenue of $1.07 billion-$1.09 billion for the second quarter, below the average analyst estimate of $1.11 billion, according to Thomson Reuters I/B/E/S.

Its profit forecast of 84-88 cents per share was also below the average estimate of $1.03.

Kors, whose comparable sales have dropped in five of the past six quarters, expects a mid single-digit percent decline in the current quarter.

REVENUE BEATS

Kors’ revenue rose slightly to $987.9 million in the quarter ended July 2, beating the average estimate of $953 million.

Demand increased in Europe, mainly for “cross-bodies, small leather goods and athletic footwear”, while handbag and watch sales weakened, Idol said.

However, customer visits slowed in its UK stores due to economic uncertainty after Britain voted to exit the European Union. Slowdown in tourism in France after recent attacks also hurt sales in Europe, he said.

Kors said it would open stores in Seoul and Singapore this fall to expand in Asia, its fastest-growing market.

Net income dropped 15.7 percent to $146.3 million, or 83 cents per share. Excluding items, Kors earned 88 cents per share, topping the average estimate of 74 cents.

The company’s shares were trading at $50.26. Up to Tuesday’s close, the stock had risen by about a quarter this year.

Reporting by Jessica Kuruthukulangara and Subrat Patnaik in Bengaluru; Editing by Kirti Pandey

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