Kors FY 4Q16 Earnings Call Notes

Michael Kors Holdings’ (KORS) CEO John Idol on Q4 2016 Results

Building on omni-channel

“We continue to build upon our omni-channel capabilities and remain focused on seamlessly integrating the customer shopping experience across all touch points, as well as taking steps to enhance our mobile shopping experience. We look forward to seeing the benefit of these efforts over the coming year.”

Expect to be challenged by a difficult retail environment

“In fiscal 2017, we expect our results to be challenged by a difficult retail environment, pressured by weak traffic and tourism trends. We will respond by carefully managing our exposure to the U.S. wholesale channel, maintaining disciplined inventory controls, and remaining committed to our relentless focus on designing world class fashion product driving brand engagement with compelling marketing programs and delivering a jet-set luxury shopping experience in our stores and our digital flagships.”

It’s flat out not true that our brand is losing its vibrancy

” Our customer continues to respond to the brand. I see constant communication from various press related things about the brand is dead or losing its vibrancy, et cetera. And that’s just flat-out not true. And along with that, we’re shipping double-digit unit increases.”

Customer research shows the brand loyalty is the highest it’s ever been

” all of our consumer research shows that the brand engagement and the brand loyalty is at highest levels that it’s ever been. And your analysis that you do annually indicated the same thing. So we just — we don’t like the amount of product that’s ending up out in the marketplace. So this is not an issue of doors or anything like that. This is really more an issue of having the right amount of product, given where we want to get back to in terms of full price selling versus promotional selling.”

Handbag business is flat to down but units are up double digits. Promotions are hurting

” Let me start with the industry. We believe that the North American handbag business is flat to down low single digits in total. I know that that’s different from what some other people have reported but that’s just our belief. So we believe that the North American business, handbag business, is about flat to down low single digits and that’s I think primarily because of the promoting that’s going on. Obviously units are up double digits and I think it’s for most of us.”

We’ve seen an acceleration in softening of mall traffic, don’t see tourism rebounding

“We believe that there’s softening that’s continuing in mall traffic. We’ve actually seen an acceleration of softening in mall traffic and this is not just our stores. This is what we see from ShopperTrak, which is a company that we use that looks at our — that looks at not only ours, but other retailers’ numbers. So we compare ourselves to that on a pretty regular basis. So mall traffic continues to soften in North America. We do not see the tourism rebounding. So we’re taking a slightly more pessimistic view of Q1 and Q2 for us. Q3 and Q4 we feel pretty optimistic about. ”

Our teams are excellent at developing content that’s engaging

“I think we’re really good as a company and our teams are excellent at developing content that is engaging and that’s exciting the customer and keeping them engaged with the brand. They may not actually shop from us but I think they love being a part of the Michael Kors family and so I think in today’s world you have to be there.

Mall traffic declining where consumers have high degree of digital access

“I think many times we’re the first company or the most honest company to come out and say these traffic trends you’re starting to see in other places in the world. So mall traffic is declining in Europe now. It’s declining in the U.K. in particular. And I would tell you that in the most sophisticated digital markets is where you see the most mall traffic slowing. So we start out — and this is just our theory and just our hypothesis — that consumers who have high levels of digital product availability are shopping less in shopping malls”

We’re done with expanding our store count

“expanding the stores, we did a handful of them. It really hasn’t been a great return for us. So I would tell you that we’re not going to do that. That’s kind of over with. There will be a handful of select locations where we’ll do that but you’ll be able to count those on your two hands and they’ll be more flagshippy type things. We just did it in London and which happens to be working, thank God. Where we did them in more regional locations it really didn’t provide the uplift from our profitability standpoint that we were anticipating. So unless we see something changing on that, that will not be part of our strategy going forward. And in terms of outlets in North America, we’re basically done at this point. I think there’s one or two more that we’re going to open and it’s over with. And that’s pretty much worldwide also.”