May 29, 2013 / 11:27 AM / 5 years ago

Luxury spending drives Michael Kors profit

(Reuters) - Upscale accessories maker Michael Kors Holdings Ltd (KORS.N) reported a better-than-expected quarterly profit as shoppers spend more on luxury goods, and the company said it would double the number of its stores in Europe, where its sales are booming.

The company, formed and owned by fashion designer Michael Kors, has grown at a blistering pace since it went public in 2011, underlining shoppers’ appetite for luxury items even in a tough economy.

The Michael Kors brand, which was launched 30 years ago as a luxury sportswear house, is known for its pyramid-studded Saffiano leather handbags, watches and apparel that have been worn by Michelle Obama and celebrities such as Jennifer Lopez.

“Given how strongly our brand has performed in the market, how well it resonates with European consumers ... we have concluded that the retail store growth potential is greater than the hundred locations we initially targeted (in Europe),” Chief Executive John Idol said on a conference call.

Sales in Europe, where it plans to increase its store count by 40 to 84, rose about 97 percent to $73.1 million in the fourth quarter.

Sales in North America, which includes the United States and Canada and makes up more than three-quarters of total sales, rose 52 percent to $516.9 million. Kors expects to open 50 stores in the region.

“Opportunities for geographic and product extensions remain, in our view. We’re believers that Michael Kors will become a significant Pan-European brand,” Citibank analyst Oliver Chen wrote in a note.

Kors joins other luxury and upscale retailers such as Tiffany & Co (TIF.N), Saks Inc SKS.N and Coach Inc COH.N Burberry Group Plc (BRBY.L) and Italian fashion house Giorgio Armani in reporting strong sales of luxury products.

The luxury market in the United States has improved, due to an increase in confidence among affluent spenders and recovering asset prices, since its collapse after the 2008 financial crisis.

Men are also spending more on luxury goods, encouraging luxury brands to step up investments.

Kors, which has gained from increased footfall as it converted its existing department store premises into branded “shop-in-shops”, said it plans to expand such concessions in its men’s sportswear and leather goods businesses.

The company, which has been taking market share from larger rival Coach, reported a 57 percent jump in fourth-quarter sales.

Coach relaunched itself this earlier this year as a “lifestyle brand”, expanding into clothing and shoes after demand for its premium handbags fell.

Kors said its fourth-quarter net income more than doubled to $101.1 million, or 50 cents per share, from $43.6 million, or 22 cents per share, a year earlier. Revenue rose to $597.2 million.

Net sales rose 59 percent to $577.4 million, compared with analysts’ average expectation of $548.2 million, according to Thomson Reuters I/B/E/S.

Analysts had expected the company to earn 39 cents per share.

The company discounted less and sold more higher margin products in the quarter, boosting margins. Gross margin rose to 59.7 percent from 57.7 percent a year earlier.

Kors shares rose as much as 4 percent to $64.29 before easing a little to trade at $62.85 by late morning on the New York Stock Exchange.

Reporting by Arpita Mukherjee in Bangalore; Editing by Saumyadeb Chakrabarty

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