Michael Kors 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

43% revenue growth

“Revenue grew 43% to $919 million and gross margin expanded 20 basis points. Income from operations grew 40%, leading to an operating margin of more than 30%.”

400 store potential in NA

“we believe that North American market can support 400 stores excluding potential men’s locations.”

200 store potential in Europe

“Over the long-term, we continue to believe we can expand our store base to 200 locations and now believe this market can generate of approximately $1.5 billion for Michael Kors.”

Inflection point develops when brand awareness greater than 50%

“brand awareness is around 89% and in Europe brand awareness is now at approximately 49%. So, we’ve always said to everyone that once we get north of that 50% area, you really start to see an inflection develop. The only market that we are north of 50% is in the UK and we are on the cusp in Germany. The balance of the markets are still in 30% to 40% range, 40%, 45%, so lots of opportunity for growth there.”

Loyal watch customer has 2-3 watches from us, we want 4-5

“the watch business is just like the rest of our businesses, we have to have newness, we have to have excitement to stimulate the customer. We know our loyal customer has somewhere between two and three watches that they’re purchasing from us. And we’ve got to excite her to want a third and fourth and a fifth.”

YOu have to invest in growth

“I might add we have said all along from again, the day we went public. We never believed that a 30% operating margin was a sustainable margin for the company. And by the way we don’t want that. So I want to be very clear, let no one be misunderstanding, we don’t think that’s the right way to run our business. We need more investment, we’re building this company for the long-term, we’re not here for a quarter-by-quarter situation, we’re here to build something that is very sustainable. And to do that you have to invest”

When you’re growing by 8-900m per year, you’re going to have to make investments

“We’re investing in distribution facilities, when you’re growing a staff business and putting on $800 million to $900 million a year, you need to invest in state-of-the-art distribution facilities, you need to upgrade your technology. By the way bringing in ecommerce in house, I don’t know how anyone could assume that that’s not going to impact our operating margins. ”

You’re bound to make mistakes in fashion at times

“Are we going to make some mistakes at times? Absolutely that’s what fashion is about. And so that timing issue for us — same thing we do by the way and the holiday season, in January we tried to get out of the sale product as quickly as possible and we try to bring spring product into our stores in January. Sometimes that works, sometimes that doesn’t work depending on how the weather is outside, depending on what the season was before.

But again I want you to know we are not going to back off being a fashion company trying to deliver newness and trying to excite our customer. That is our competitive edge period, end of story, that’s why we’re winning around globe.”

Lululemon 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Even LULU saw comp decline at its brick and mortar

“Direct to consumer sales, which increased by 24.9%, or $19.5 million, offset by comparable store sales decline of 2% on a constant dollar basis. And on a combined basis, including both physical stores and ecommerce, our total cost increased 4% on a constant dollar basis.”

20% unit growth, 7% sales growth

“We ended the year with 254 total stores versus 211 a year ago. There are 199 stores in our comp base, 39 of those in Canada, 129 in the United States, 23 in Australia”

“For the fourth quarter, total net revenue rose 7.3% to $521 million, from $485.5 million in the fourth quarter of 2012.”

Gross profit basically flat

“Gross profit for the fourth quarter was $278.8 million or 53.5% of net revenue, compared to $274.5 million or 56.5% of net revenue in Q4 2012.”

Guiding full year revenue growth of 11%

“For the full fiscal year 2014, we’re targeting to open up 42 corporate owned stores, including Australia and the U.K. and up to 10 new ivivva stores. We expect our annualized combined comp to be in the low to mid-single digits and therefore project net revenue to be in the range of $1.77 billion to $1.82 billion.”

Investing in understanding guests at a personal level

“I think most of these investments right now are centered around CRM and really sort of creating a seamless experience between online and brick and mortar, and also sort of understanding our guests at a more micro level so that we can have a more personalized experience with them.”

Not the only game in town anymore

“We’re certainly not the only game in town anymore. But as we get back to our roots, we’re really focusing on innovation. I don’t want to spend too much time worrying about our competitors. I certainly want to know what they’re doing. It’s validation of the strength of our market and its global relevance and its growth in every single global market.

But we’re going to get back to what we do best, which is inventing the future, and really focusing on the magic that is very unique to lululemon, which is combining beautiful as well as technical innovation. So certainly something that we are aware of, but something that we’re going to look forward rather than over our shoulder.”

Sticker shock on rent in Hong Kong

“When we look at Hong Kong, I think the reason that we’ve moved more slowly than we’d like is not simply sticker shock on the rent. I think as we move into different regions, we have to be a little bit flexible in terms of what our store looks like in those regions”

Have to create deep local expertise

“value comes with having the local deep expertise that we mentioned earlier. It’s not how is Hong Kong going to adapt to lululemon, but how is lululemon going to adapt to Hong Kong. And that’s going to open a lot of doors to accelerate our international growth”