Michael Kors (KORS) Gains On Q4 Earnings & Revenue Beat

Michael Kors Holdings Ltd. (NYSE:KORS) has maintained its earnings streak for the fourth consecutive quarter. The luxury lifestyle retailer’s fourth-quarter of fiscal 2016 earnings per share of 98 cents increased 8.9% year over year and also surpassed the Zacks Consensus Estimate of 96 cents. Further, total revenue of 1,198.7 million came in above the Zacks Consensus Estimate of $1,150 million and also climbed 10.9% year over year. Following the stellar results, the company shares rallied over 7.9% in pre-market trading session.

The upside in the top line was primarily driven by an increase in retail net sales in the Americas, Europe and Asia. However, the earnings growth in the quarter was limited by a 2 cent impact from forex volatility.

Further, gross margin fell 20 basis points (bps) to 58.2% with forex headwinds resulting in a 100 bps decline. Operating margin deteriorated 330 bps year over year to 20.4% owing to a rise in operating expenses.

Separately, the company announced that it has completed the buyout of Michael Kors (HK) Limited, the exclusive licensee in China and certain other jurisdictions in Asia, for $500 million in cash.

Segment Performance

The Retail segment generated net sales of $572.6 million, up 22% year over year. The upside was mainly driven by 142 new stores openings over the past twelve months and higher e-commerce sales. Operating profit fell 6.2% to approximately $67.7 million. Comparable store sales declined 0.3% (up 1.5% on a constant currency basis).

At the Wholesale segment, revenues inched up 3.5% to $590.5 million, while operating profit increased 3.3% to $160.7 million.

Licensing segment revenues declined 13.6% to $35.6 million. Operating profit decreased 12.3% to $15.7 million.

Regional Performance

Revenues in the Americas grew 4.6% year over year to $879.1 million, while revenues in Europe rose 15.6% from the year-ago quarter to $254.1 million. Lastly, revenues in Asia soared 216.4% year over year to $65.5 million.

Other Financial Data

As of Apr 2, 2016, Michael Kors had cash and cash equivalents of $702 million and shareholders’ equity of $1,999.5 million.

At the end of the fiscal fourth quarter, Michael Kors operated 668 stores worldwide, which included of licensed locations. Michael Kors repurchased 3,690,685 shares for approximately $200 million. As of Apr 2, 2016, the company has nearly $358.1 million worth of shares remaining under the current repurchase authorization. The company’s board of directors also replaced the previously announced program with a new $1 billion share repurchase plan.

Guidance

Management expects fiscal 2017 revenues of to be flat with the previous year. Further, comps are likely to decrease in low-single digits. Also, fiscal 2017 earnings are estimated in the range of $4.56–$4.64 per share. The Zacks Consensus Estimate is currently pegged at $4.53 per share. The company expects operating margin to be 21.5%.

Further, management anticipates first-quarter fiscal 2017 revenues in the range of $940 million to $950 million. Comps are projected to decrease in mid-single digits.

Earnings are projected in the range of 70–74 cents per share for the fiscal first quarter. The Zacks Consensus Estimate, which is pegged at 94 cents per share, might witness downward revision in the coming days. Moreover, investments across the board increase operating expense margins.

Zacks Rank and Key Picks

Michael Kors currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Delta Apparel Inc. (NYSE:DLA) , Oxford Industries Inc. (NYSE:OXM) and Perry Ellis International Inc. (NASDAQ:PERY) . Delta Apparel and Oxford Industries sport a Zacks Rank #1 (Strong Buy), while Perry Ellis International holds a Zacks Rank #2 (Buy).