Michael Kors and Wall Street

On August 4th, Michael Kors Holdings posted its Q1 FY15 quarterly earnings, and beat Wall Street’s consensus.

The luxury fashion brand reported a quarterly revenue  of $919.2 million in revenue, up 43% from the revenue of Q1 FY14. Diluted, this came down to an earnings-per-share of 91 cents, 10 cents ahead of Wall Street’s expectations. Furthermore, net-income for the quarter was $187.7 million up 50% from the preceding year.

Michael Kors

On top of that, same-store sales grew 24.4% and the company opened another 115 retail stores. The company also clocked in $32.1 in licensing revenue and saw its income abroad soar; in Europe, the company saw a 128% increase in revenue.

Yet, in after-hours trading sessions, the stock price of the company fell between 2.5% to 5%, and traded around a mean price of $79.

Why so?

Well the stock is increasingly become a target of negative press, and that is affecting its stock price. Investors are wary of Michael Kors’ ability to maintain gross-margins, and sustain the growth they have been experiencing. This is sort of reminiscent of what happened to Apple, about 1.5 years ago. Apple too was posting record-breaking results yet, the stock continued to decline due to the pessimism surrounding the stock.

Michael Kors 2

 

In its quarterly earnings, the company’s CEO, John Idol, stated that “We never believed that a 30 percent operating margin was a sustainable margin for the company”.

The company, due to its robust growth, is now investing overseas and this is affecting the company’s ability to maintain its margins. The company’s margins for the first quarter was 31%, and the company expects to see a 200 basis points decline in the upcoming fiscal year.

Project Runway Avenue Temporary Street Renaming

Furthermore, analysts and investors are also contemplating the inventory issues affecting the brand. In Q1, the company had an excess of inventory, and moderated these amounts by sales and other discounting marketing. According to John Idol, the company is “back on track” in regards to inventory.

These issues, combined with the heavy investments in overseas expansion, the stellar growth of the company, shrinking margins, and overall pessimism have made investors wary and may usher a more conservative outlook from them.

As of August 5th, KORS was up 2.71% at trading at a price of $79.10.

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