Michael Kors Earnings Report: Declining Sales and Stock Price

Michael Kors Earnings ReportOn Wednesday, May 27, Michael Kors Holdings Limited (NYSE/KORS) released its earnings report for the quarter ended March 28, 2015. The company reported $0.90 earnings per share (EPS) for the quarter—one cent lower than the analyst expectation of $0.91. (Source: Michael Kors, May 27, 2015.)

Michael Kors Holdings Limited is a fashion company founded by American designer, Michael Kors. The company is known for handbags and accessories. It went public in December of 2011.

Shares plunged nearly 24% to $46.09 in Wednesday’s trading as the company reported the slowest revenue growth since its IPO. In the past 12 months, Kors’ stock price fell more than 50%.

Aggressive Expansion, Sales Down, Slow Revenue Growth

The report shows troubling signs for the company. Stores open for a year or more experienced a 5.8% decline in sales. Analysts were expecting a three percent gain. This is driven by North America’s 6.7% drop and Europe’s 5.6% decline.

Investors are worried about the company’s aggressive expansions. In the fiscal year ended March 28, Kors added 121 new stores, or a 30% increase. Such an expansion could risk overexposure in today’s global economy.

The disappointing sales figure was, in part, due to the strong U.S. dollar. A strong dollar makes tourists less likely to purchase goods in the U.S. Moreover, sales in other parts of the world are worth less when converted to U.S. dollars. However, excluding the impact of currency, sales at existing stores are still down 5.8% in North America.

Kors’ watch business is also experiencing troubles. In the company’s earnings conference call, CEO John Idol said there is “continued deceleration” in watch sales. He believes customers are shifting to the company’s jewelry category.

The outlook is gloomy, too. For the next fiscal year, the company’s forecast on revenue is between $4.7 billion and $4.8 billion—much lower than analysts’ expectation of $5.05 billion. EPS is projected to be between $4.40 and $4.50, below analysts’ $4.70 expectation.