Michael Kors FY 4Q15 Earnings Call Notes

posted in: Notes | 0

Revenue up high teens but comps declined

“During the fourth quarter total revenue grew 18% and EPS increased 15%. Double-digit gains extended across our retail, wholesale and licensing segments. While we were pleased with the continued momentum in our overall business comparable store sales declined 1.7% on a constant currency basis. ”

Poor tourist traffic, decline in watch business, shipping delays

“We attribute this primarily to a continuation of weak traffic trends in North America, including a reduction in tourist traffic, a decline in North America watch business as well as a 90 basis points negative impact from shipping delays in our footwear, women’s wear and small leather goods products associated with the recent West Coast port issues.”

Citing social media followers

“In the fourth quarter on a year-over-year basis Facebook followers increased 22%, Instagram followers increased 99%, Twitter followers increased 46% and Weibo followers increased 120%, as consumers around the globe turn to Michael Kors for lifestyle and fashion inspiration.”

Foreign currency hedges roll off in the early part of the FY

“we expect foreign currency to remain a headwind for fiscal 2016. In addition to the translation impact we are exposed to transaction risk as our international businesses purchase goods and services in U.S. dollars. While we partially hedge purchases through forward contracts, many of our favorable contracts will be expiring in the early part of the fiscal year, resulting in higher cost of goods. Our largest currency exposures are the euro, Canadian dollar and Japanese yen.”

Comps a little better than posted when including e-commerce

” if you look at our comp store sales even in this quarter, when you add back the ecommerce and some of our stores that we have upside and sadly the port issue — and on a constant currency basis we are basically close to flat in our comp stores. So while we did have difficulty in North America it really isn’t as bad as it kind of was reflected when we’re not reporting a total number with the comp stores’

We’re ready to aggressively buy our stock

“We have, I think the best performance of any company in the global luxury field today. And when we’re reporting our earnings, I think it’s very, very clean in terms of the way that we are performing, and clearly the marketplace has not responded to our performance. And while we are very concerned about that issue, we think that that’s only going to make it that much more interesting for us to continue to repurchase shares. And I would say we’ll probably do it aggressively because as much as the market continues to undervalue our company, myself and the management team and the Board feels that just the wrong perspective on a very, very successful and strong company that we’ve built globally.”

No indication that wholesale channel is any more promotional than it has been

“we really don’t see that channel as being more promotional than it was the last three years to be quite frank with you. There are few retailers who are doing some additional price matching of one another. But that really hasn’t been something that has significantly increased our business or been a driver for the business at least in terms of our perception.’

Handbags doing well, footwear too, watch is declining in North America, but not internationally

“our handbag business continues to grow at very, very nice rates and the fact that our footwear business is growing at very, very substantial rates as well. Now that’s somewhat offset by our watch business which you would have to refer to as a core business and that business is definitely seeing a decline in the North American market. We’re not seeing that in the European and Asian market, actually the business is accelerating at a very, very nice pace.”

Kors’ CEO really, really likes the phrase very, very (it was used 11 times on the call)

“And we believe part of that shift to the jewelry category, where we’re again our jewelry business is very, very strong.”

Tourism dropped as soon as the euro started its decline

“you can almost trace it back to when the euro started its precipitous decline. All of a sudden the tourism really dropped for us. We had seen some minor declines in Q3 in tourism but we didn’t think it was going to be as precipitous as what we saw happen and kind of in January things were okay and then February and March the business got extremely difficult.”

Watch sales are not healthy in North America

“watch sales, watch sales, again our handbag business is healthy, our shoe business is healthy, our women’s ready business healthy. Our watch business is not healthy in North America. Outside of North America it is. And we did see shift in our business to jewelry. So whether that’s something that’s cyclical, whether that’s something that’s a trend, whether that’s something that’s driven around other entries into the category, we are not exactly 100% sure. We’ve gone out and done a lot of consumer research around it. The customers still saying very, very positive things about the brand and their intent to buy Michael Kors and interestingly enough some of that intent is shifting into other categories.”

Watches were a significant portion of the comp decline

“We’re not going to break it out but it’s significant. It was a significant portion of the comp decline.”

We’re not trying to be number one market share

“We’re still not the number one market share in North America and I’ve told you we don’t aspire to be the number one market share…the way that you would have to grow the market share additionally in North America would be very promotionally-driven and we don’t want to do that. And we’re comfortable with that.”

We want to be best in class in e-commerce and we’re not there yet

“And we want to be best-in-class. We do not view ourselves as best-in-class on this. We view ourselves as behind but making a very significant effort to move forward on this platform and hopefully within the next 18 months we will be up digitally with ecommerce platforms globally probably with the exception of China. And that will be by the way our unified platform inside the company, which we think will be a real advantage for our business as we grow going forward.”