Andrew Sohn Notes: KORS, SHAK, M

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Andrew Sohn, a junior at Columbia University, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Andrew has read this week.

 

KORS

 

Cannibalization of mall traffic

“In North America, we experienced a high-single-digit comp decline, reflecting a channel shift to online purchases and the continuation of reduced mall traffic.” –Michael Kors (KORS)

 

Store traffic future looks bleak

“Near term, we expect continued pressure from macroeconomic headwinds, including currency fluctuation, lower store traffic due to channel shift, reduced tourism in select markets and geopolitical issues.” –Michael Kors (KORS)

 

Ready to pivot for new tastes, newness is key

“Newness is without a question what is driving her interest, and I just might add, on that point, if you look at what’s happening, there’s some really good things starting to happen in the handbag business. Backpacks are starting to trend, and I think we’re a leader in that category. I think we’ve caught it pretty early on. There’s a very big shift towards smaller handbags and then crossbodies and small leather goods, particularly the millennial customer. It’s the way that she’s shopping. It’s the way that she’s wearing the product.” –Michael Kors (KORS)

 

Luxury companies should have strong balance sheets

“We believe that having a company that operates with a strong balance sheet is the right way to build a luxury company. Other companies don’t run their businesses that way, but we think a luxury company should be run with a strong balance sheet, of which we’ve done from the date that we really went public.” –Michael Kors (KORS)

 

Reducing inventories for department stores

“as we see the department store channel in North America slowing down because you know that, you know the department stores here are not posting robust results. We’ve decided to reduce the amount of inventory that we’re starting to put into that channel because we don’t want to have a lot of markdowns showing up inside the channel.” –Michael Kors (KORS)

 

Odd things happening in Europe

“You know, it’s so funny because while Greece doesn’t mean anything, while that was going on, all of a sudden business softened up. And the minute that that kind of got past whatever was in the consumer’s mind, our business in this quarter has really accelerated. So there’s some funny stuff going on over there.” –Michael Kors (KORS)

 

 

SHAK

 

Pursuing cluster growth

 

“We continue to execute our strategy to cluster growth in existing markets, opening our third Shack in New Jersey, at the village of Bridgewater Commons; and our second Shack in Chicago, on Michigan Avenue, on the ground floor of the impeccably restored Chicago Athletic Association, a boutique hotel overlooking Millennium Park.” -Shake Shak (SHAK)

 

Increasing pace of growth due to favorable environment

 

“Development conditions remain favorable for Shake Shack. And as a result, our team has been able to increase our pace of openings to exceed our originally stated guidance of at least 10 new domestic company-operated Shacks in 2015. We are confident that we will now open 12 new domestic company-operated Shacks in 2015.” -Shake Shak (SHAK)

 

Commodity prices going to be a problem for the foreseeable future

 

“As you know, we follow the market in our major baskets of beef and dairy. So beef is still up, high-single digits from last year for us, even in Q2. So we’re being conservative about what that means for the rest of the year. And we just don’t see the light at the end of the tunnel there just yet for sometime. We’ve been winning on dairy as of late, but then as Jeff noted starting to get a little more expense. Eggs are up. Our dairy costs have gone up” -Shake Shak (SHAK)

 

 

M

 

Consumer spending restricted to certain categories

“The overall growth in the economy is modest at best and we are seeing customers gravitating to restaurants, recreational services, healthcare, and electronics rather than to traditional general merchandize apparel and furnishing category.” -Macy’s (M)

 

Cautious expansion in China

“Our game plan is to start small and use a test and learn approach as we move forward. We also believe that by increasing the presence of Macy’s in China, we will actually help our business here as well both with the Chinese tourists as well as Chinese residents.” -Macy’s (M)

 

Must maintain financial flexibility

“the key here is maintaining financial flexibility, so that if the business hits a bump, we would still have the access to the financial markets that we need to operate the business as a proxy for that. That is why we talk about remaining investment grade as being so important to the company because we want to be a strong retailer for many years to come, and so we do need to have that flexibility for the speed bumps that do happen or the cyclical nature of retail.” -Macy’s (M)