Asia drives Michael Kors sales, as America underperforms

Asia proved the strongest growth market for premium apparel and accessories retailer Michael Kors last year, offsetting ongoing weakness in its largest market, the Americas.

Asian sales increased 17.5 per cent to US$137.7 million in the fourth quarter and were up 33.7 per cent to $469 million for the year.

Michael Kors sales and profit numbers released overnight included a better than expected fourth quarter, but flat forecasts for the year ahead disappointed analysts.

Net income for the three months ended March 31 was $44.5 million, a significant improvement over a $26.8 million loss during the same period last year.

Fourth-quarter comparable Michael Kors sales were up 2.3 per cent on strength in accessories, footwear and men’s categories, but fell 1.7 per cent on a currency-corrected basis.

Michael Kors has been investing heavily in transitioning its business model following the acquisition of Jimmy Choo last year, with chairman and CEO John D Idol saying a solid foundation had been created.

“We created a global luxury group with the acquisition of Jimmy Choo and completed the first year of our Runway 2020 strategic plan for the Michael Kors brand, ending the year significantly ahead of our expectations,” he said.

“Looking to fiscal 2019, we have a number of initiatives planned to drive growth in both of our luxury brands.

The company expects building momentum to deliver first quarter revenue of around $1.13 billion, with a $140-$145 million contribution from Jimmy Choo’s 182 stores.

GlobalData MD Neil Saunders said the addition of Jimmy Choo had masked weakness in Michael Kors sales figures for last year.

“While the headline growth number from Michael Kors looks strong … it is flattered by the addition of Jimmy Choo sales; when these are stripped out, the growth plummets to a lacklustre 0.6 per cent,” Saunders said.

“This anemic underlying growth rate comes off the back of a dire performance last year when revenues plunged by 11.2 per cent. Taking account of all these things, the fashion brand is ending its fiscal year with soft growth.”

Store renovations, expansion into new luxury concepts, a renewed focus on e-commerce and the launch of a new loyalty program have emerged as key pillars of the company’s 2020 strategic plan.

In comparison, Americas sales declined by 2.5 per cent to $342.8 million in the fourth quarter and by two per cent to $1.67 billion for the year.

“Perhaps the most damning figure is the Americas retail sales number,” Saunders said.

“A particularly worrying outcome given the 18 per cent decline posted in the prior year. In our view, this number clearly indicates that Michael Kors is not back to full strength and still has a lot of work to do on its proposition.”

Encouragingly, retail growth and the addition of Jimmy Choo bolstered margins, resulting in a 14.5 per cent increase in gross profit.

Jimmy Choo sales were $107.9 million worldwide in the fourth quarter and $222.6 million for the full year, with Europe and the Middle East driving turnover.

There were 1011 stores in Michael Kors business as at March 31, including 829 Michael Kors stores.

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