What Are Michael Kors' Strategies For Long-Term Growth?

Michael Kors Holdings Limited (NYSE:KORS) has been constantly deploying resources to expand product offerings, opening new stores, building shop-in-shops and upgrading e-commerce platform. These endeavors along with the positive earnings streak for the 10th straight quarter gives an indication that the stock is well poised in the long run. Let’s delve deeper.

Growth Drivers

Michael Kors’ acquisition of Jimmy Choo will help diversify portfolio and tap international markets. The buyout is likely to be accretive in the low-single digits in fiscal 2020. In order to drive top-line growth, Michael Kors has been focusing on store expansion. In fiscal 2016, the company opened 142 new stores, which included 47 in the Americas and 95 worldwide. In fiscal 2017, it inaugurated 159 net new stores openings, which includes 111 outlets related to the acquisition of the earlier licensed operation in Greater China.

Given the scope for high profitability from company-owned stores, management is putting more emphasis on opening retail outlets. The company also remains focused on enhancing men’s business either through standalone stores or by adding men's offering in the existing lifestyle outlets in North America, Europe and Asia along with expanding luxury fashion product assortments.

The company closed the buyout of Michael Kors (HK) Limited, the exclusive licensee in China and certain other jurisdictions in Asia, for $500 million in cash. During second-quarter fiscal 2018, total retail net sales in Asia surged 30.4% on account of new store opening as well as positive comparable sales growth. The company stated that it will continue with the expansion drive in Asia and also believes it has a $1 billion opportunity in the long term.

Further, Michael Kors which shares space with Gildan Activewear Inc. (TO:GIL) , PVH Corp. (NYSE:PVH) and Lululemon Athletica Inc. (NASDAQ:LULU) , has stated that its project Runway 2020 strategic plan has made early progress during the second quarter. Notably, this plan focuses on product innovation, brand engagement and customer experience. As part of the company’s strategy of product innovation it launched Bancroft in the Michael Kors collection line. The product innovation strategy aided the global Women's footwear comparable sales to increase by double digit.

Concerns

Stiff competition, falling comps, aggressive promotional environment and waning mall traffic are making things tough. We noted that comparable sales dipped 1.8% in the second quarter of fiscal 2018, following declines of 5.9% in the preceding quarter. We noted that comps had declined 14.1%, 6.9%, 5.4% and 7.4% in the fourth, third, second and first quarters, respectively. In fiscal 2018, it continues to expect comparable sales to decrease in the mid-single digit range.

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