Waning Sales, Dismal Comps Holding Back Michael Kors (KORS)

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."- Warren Buffett.

At the moment, the quote fits perfectly for Michael Kors Holdings Limited KORS as the company’s near-term future looks bleak. Investors need to exercise extreme caution when it comes to the stock as it is unlikely to show any major improvement in the near term. Michael Kors has exhibited a bearish run year to date plunging 20.4% compared with the Zacks categorized Textile-Apparel Manufacturing industry’s decline of 2.8%. Let’s delve deeper and try to assess what’s taking this Zacks Rank #5 (Strong Sell) company downhill.

Stiff competition, falling comps, aggressive promotional environment and waning mall traffic are making things tough for Michael Kors. We noted that comparable sales had fallen 14.1% in the final quarter of fiscal 2017, following declines of 6.9%, 5.4% and 7.4% in the third, second and first quarters, respectively. The company is also struggling with its top-line performance. After registering a meager growth of 0.2% in the first quarter of fiscal 2017, it had declined 3.7%, 3.2% and 11.2% in the second, third and fourth quarters of fiscal 2017.

Despite Michael Kors’ better-than-expected earnings and revenues in fourth-quarter fiscal 2017, investor sentiments were hit hard due to year-over-year decline registered in both the top and bottom lines. Additionally, the company provided a bleak outlook. Michael Kors envisions fiscal 2018 total revenue to be approximately $4.25 billion and comparable sales to decrease in the high-single digit range. Management anticipates earnings in the band of 3.57–$3.67 per share for the fiscal year, significantly below the fiscal 2017 earnings per share of $4.24. For the first quarter, Michael Kors forecasts total revenue between $910 million and $930 million, and expects comparable sales to decline in the high-single digit range.

Michael Kors’ wholesale segment continues to pose concern for the investors. In fourth-quarter fiscal 2017, wholesale segment sales declined 22.8% to $456.1 million primarily due to dismal performance of Americas and European region, while on a constant currency basis, it fell 22.3%. In the third, second and first quarters of fiscal 2017, wholesale segment sales declined 17.8%, 18.4% and 7%, respectively. In fiscal 2018, the company expects wholesale segment to decrease in the low-teens range.

Still Interested in the Retail Space? Check these

Better-ranked stocks worth considering in the retail space include G-III Apparel Group, Ltd. GIII, Tilly's, Inc. TLYS and Guess', Inc. GES. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group has an impressive long-term earnings growth rate of 15%.

Tilly's has long-term earnings growth rate of 13% and also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 120.4%.

Guess', Inc. has an impressive long-term earnings growth rate of 17.5%.
 
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