(Reuters) - Michael Kors Holdings Ltd's KORS.N fewer-discounts strategy bore fruit in the second quarter, reversing a decline in Americas sales for the first time in more than a year and helping it beat expectations for revenue and profit.
Shares soared to an 18-month high after the handbag maker also lifted its full-year revenue forecast, mainly due to the inclusion of Jimmy Choo sales after it bought the high-end shoemaker for $1.2 billion in July.
Once the hottest name in affordable luxury, Kors has been grappling with declining sales as more people shop online. Wider distribution and reliance on promotions to boost sales also eroded the prestige of its brand.
To stanch a year-long decline in revenue, Kors halted much of that discounting by limiting supplies to department stores and off-price channels, while also refreshing its line of bags and shutting underperforming stores.
The company said the average price per product sold rose in the second quarter in its women’s accessories, footwear and ready-to-wear departments.
A-Line Partners analyst Gabriella Santaniello pointed to a 1 percent rise in previously soft gross margins and said channel checks showed handbags under the Sloan and Mercer range in particular had sold strongly, even at full price.
“It is almost as if they have trained the consumer to shift their mindset to say like ‘okay, I want this handbag and I’m going to pay regular price for it’,” Santaniello said.
“The consumer is not going to wait for the sale, because the sale is not necessarily coming.”
To further lower its dependence on discounting, Kors said on a call with analysts that it would reduce promotional days during the holiday season by nearly two-thirds at its stores and website, and cut promotions by 67 days at department stores and off-price channels.
Total revenue rose 5.4 percent to $1.15 billion in the quarter, reversing a one-year streak of declining sales, and beat the $1.05 billion expected by analysts, according to Thomson Reuters I/B/E/S.
Sales in its Americas business, which includes North America, Latin America and the Caribbean, rose 0.9 percent, after falling for more than a year.
Kors lifted its fiscal 2018 revenue forecast to $4.59 billion from $4.28 billion.
Excluding one-time items, Kors earned $1.33 per share, beating the analysts’ average estimate of 83 cents per share, mainly due to a much lower tax rate.
The company’s shares were up 14.3 percent to $54.43 in afternoon trading. They rose as much as 15.5 percent to a one-and-a-half year high of $55 earlier in the session.
Reporting by Gayathree Ganesan in Bengaluru; Editing by Sai Sachin Ravikumar and Sriraj Kalluvila
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