China buffers Michael Kors sales shock

Michael Kors CEO and chairman John Idol was refreshingly honest when revealing the latest quarterly sales – and annual results – overnight.

“Our product and store experience did not sufficiently engage and excite consumers,” he confessed.

For the full year to April 1, Michael Kors sales globally fell 4.6 per cent to US$4.49 billion. But during the last quarter, sales fell at nearly three times that rate – by 11.2% to $1.06 billion.

“We acknowledge that we need to take further steps to elevate the level of fashion innovation in our accessories assortments and enhance our store experience in order to deepen consumer desire and demand for our products,” said Idol, describing the year as “challenging” and the retail environment “difficult” given elevated promotional levels.

Michael Kors’ sales problem is complex. While retail sales increased 7.4 per cent for the full year, to $2.57 billion, comparable sales fell 8.3 per cent. Wholesale sales slumped 17.2 per cent and licensing revenue by 15.9 per cent. Gross profit fell 4.9 per cent to $2.66 billion, or 59.2 per cent of total revenue.

The last quarter appeared to be the worst, even excluding a $193 million impairment for shuttering stores across the US.

While American revenue fell 18 per cent and European revenue by 15.3 per cent, sales in Asia soared 96.3 per cent to $128.6 million.

China led the Asian improvement, largely down to Michael Kors buying back its distribution rights and managing them directly.

In the Americas and Europe, Michael Kors will close as many as 125 full-price stores over the next two years as it tries to improve the profitability of its store network.

“Looking ahead, as we expand the fashion innovation in our accessories assortments, right-size our store fleet and elevate our store experience, fiscal 2018 will be a transition year in which we establish a new baseline before returning to long-term growth,” said Idol. “We have a strong brand, led by Michael Kors, with a history of fashion innovation and leadership, a global footprint with stores positioned in the best locations around the world and the marketing expertise to effectively convey our fashion stories.”

At April 1, the company operated 827 retail stores, including concessions, compared to 668 at the end of the same prior-year period. The company opened 133 stores, including concessions operated through licensing partners, during the year. Including licensed locations, there were 960 Michael Kors stores worldwide at the end of the fourth quarter.

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