Michael Kors' sales pick up as full-price strategy pays off

(Reuters) - Michael Kors Holdings Ltd KORS.N reported strong holiday-quarter sales and raised its full-year revenue forecast, showing the luxury goods maker's success in moving to reinvigorate sales and brand prestige by offering fewer promotions.

The logo of Michael Kors is seen on an outlet store in Metzingen, Germany, June 16, 2017. REUTERS/Michaela Rehle

The retailer’s shares were up 3.7 percent at midday on Wednesday, easing after rising as much as 6.6 percent to a three-year high of $69.75.

Once the hottest name in affordable luxury, Kors chased mass-market appeal by making its sought-after products more widely available and through promotions. But that led to brand fatigue and a year-long fall in revenue, forcing a rethink in strategy.

Last year, Kors dialed back supplies to department stores and off-price channels, refreshed its product lines, shut underperforming stores and offered fewer discounts online. It intensified these moves in the key holiday shopping season.

That led to Kors’ total revenue increasing for the second straight quarter, while same-store sales in the holiday quarter fell much less than expected as a drop in sales volumes was made up average selling prices rising 5 percent to 10 percent.

“So we’re finding both in our own stores and in our wholesale partners, shop-in-shops that ... we are able to sell things that are at a higher price, Chief Executive John Idol said on an earnings call.

“Our best-selling dress was $395. I mean, that’s really an extraordinary thing for us.”

Kors’ same-store sales fell 3.2 percent in its third quarter ended Dec. 30, much less than analysts average estimate of a 6.8 percent drop, according to Thomson Reuters I/B/E/S.

Kors expects same-store sales to decline in the low-single digits this quarter as it clears inventory. Idol said once the “promotionality piece” was over by the next quarter, Kors could introduce fresher, costlier products for the fall season.

The company’s total revenue increased 6.5 percent to $1.44 billion in the holiday quarter, beating analysts estimates of $1.38 billion.

However, revenue fell 2 percent, after backing out a $114.7 million contribution from Jimmy Choo, the high-end shoemaker Kors bought last year.

That highlights Kors was not able to capitalize on “heightened consumer spending and confidence,” Neil Saunders, managing director of GlobalData Retail, said in a note.

Kors’ profit fell 19 percent to $219.4 million due to higher taxes and costs, Excluding items, it earned $1.77 per share, beating estimates of $1.29.

The company raised its full-year revenue forecast to $4.66 billion from $4.59 billion.

Reporting by Nivedita Balu and Sangameswaran S in Bengaluru; Editing by Savio D’Souza