Earnings Release
Michael Kors Holdings Limited Announces First Quarter Fiscal 2017 Results
•First Quarter Diluted EPS was $0.83 ($0.88 excluding one-time transaction costs)
Michael Kors Holdings Limited (KORS) (the "Company"), a global
luxury lifestyle brand, today announced its financial results for the
fiscal 2017 first quarter ended July 2, 2016.
For the first quarter ended July 2, 2016:
•
Total revenue increased 0.2% to $987.9 million from $986.0 million in
the first quarter of fiscal 2016. On a constant currency basis, total
revenue was flat versus the prior fiscal year.
•
Retail net sales increased 7.6% to $562.9 million driven primarily by
221 net new store openings since the end of the first quarter of
fiscal 2016, including 145 stores associated with the Company’s recent
acquisitions of Greater China and South Korea and the consolidation of
the Latin American operations. Comparable sales decreased 7.4%. On a
constant currency basis, retail net sales grew 7.4%, and comparable
sales decreased 7.6%. Wholesale net sales decreased 7.0% to $394.4
million and on a constant currency basis, wholesale net sales
decreased 7.2%. Licensing revenue decreased 20.9% to $30.6 million.
•
Total revenue in the Americas decreased 5.0% to $690.8 million on a
reported basis and decreased 4.8% on a constant currency basis.
European revenue grew 3.3% to $224.0 million on a reported basis, and
grew 2.9% on a constant currency basis. Revenue in Asia increased
74.5% to $73.1 million on a reported basis, and increased 67.7% on a
constant currency basis.
•
Gross profit decreased 2.0% to $591.3 million, and as a percentage of
total revenue was 59.9%. Foreign currency translation and transaction
negatively impacted gross profit margin by approximately 100 basis
points. This compares to gross margin of 61.2% in the first quarter of
fiscal 2016.
•
Income from operations was $186.9 million, or 18.9% as a percentage of
total revenue. This compares to $248.6 million, or 25.2% as a
percentage of total revenue, for the first quarter of fiscal 2016.
•
Net income attributable to MKHL was $147.1 million, or $0.83 per
diluted share, based on a 21.2% tax rate and 176.6 million weighted
average diluted shares outstanding. Excluding $8.9 million after-tax,
or $0.05 per diluted share, of one-time costs related to the
acquisition of the Company’s Greater China licensee, net income
attributable to MKHL for the first quarter of fiscal 2017 was $156.0
million, or $0.88 per diluted share. Net income attributable to MKHL
for the first quarter of fiscal 2016 was $174.4 million, or $0.87 per
diluted share, based on a 29.4% tax rate and 200.1 million weighted
average diluted shares outstanding.
•
At July 2, 2016, the Company operated 771 retail stores, including
concessions, compared to 550 retail stores, including concessions, at
the end of the same prior-year period. The Company had 110 additional
retail stores, including concessions, operated through licensing
partners. Including licensed locations, there were 881 Michael Kors
stores worldwide at the end of the first quarter of fiscal 2017.
John D. Idol, the Company’s Chairman and Chief Executive Officer, said,
"We are pleased to have once again exceeded our first quarter revenue
and earnings per share expectations. We delivered another quarter of
strong growth in our North American digital flagships, further expanded
our presence globally, particularly in Asia, and expanded our fashion
product offerings. However, this progress was muted by the continued
decline in mall traffic trends as well as a decrease in tourism in
certain major cities which negatively impacted our comparable sales
performance during the quarter. Looking ahead, we remain focused on
executing against our long-term growth strategies across both product
categories and regions. For the Fall season, we are excited about the
launch of several new digital flagships in Europe, the debut of our
Michael Kors ACCESS line of smartwatches and trackers and our new
Wonderlust fragrance, as well as the continued development of our men’s
business. Overall, we are on track to deliver on our revenue and
earnings per share goals for the year."
Share Repurchase Program
During the first quarter, the Company repurchased 8,025,749 of the
Company’s ordinary shares for approximately $400.0 million in open
market transactions. As of July 2, 2016, the remaining availability
under the Company’s share repurchase program was $600.0 million. Share
repurchases may be made in open market or privately negotiated
transactions, subject to market conditions, applicable legal
requirements, trading restrictions under the Company’s insider trading
policy, and other relevant factors. The program may be suspended or
discontinued at any time.
Balance Sheet
As of July 2, 2016, the Company had $248.6 million of debt, which was
recorded within short-term debt in its Consolidated Balance Sheet. This
debt consisted of borrowings under the Company’s revolving credit
facilities. The amount available for future borrowings is approximately
$749.4 million.
Outlook
For the second quarter of fiscal 2017, the Company expects total revenue
to be between $1.07 billion and $1.085 billion, which includes a planned
reduction in wholesale shipments, and comparable sales to decrease in
the mid-single digit range. The Company expects an increase in gross
margin of approximately 100 to 130 basis points, driven by favorable
geographic and channel mix shift. The Company expects an increase in
operating expense primarily due to continued investments in
international expansion, digital flagships, and global infrastructure.
Operating expense as a percentage of total revenue is expected to
increase 790 to 820 basis points. Diluted earnings per share are
expected to be in the range of $0.84 to $0.88 for the second quarter of
fiscal 2017. This assumes 171 million weighted average diluted shares
outstanding and a tax rate of approximately 21%.
For fiscal 2017, the Company expects total revenue to be flat versus the
prior year and comparable sales to decrease in the mid-single digit
range. Operating margin is expected to be approximately 21.5% on a
non-GAAP basis, excluding the one-time acquisition related costs, and
approximately 21.3% on a GAAP basis, including the one-time costs. For
fiscal 2017, diluted earnings per share are expected to be in the range
of $4.56 to $4.64 on a non-GAAP basis, excluding the one-time costs, and
$4.51 to $4.59 on a GAAP basis, including the one-time costs. This
assumes 171 million weighted average diluted shares outstanding and a
tax rate of approximately 21%.
Conference Call Information
A conference call to discuss first quarter results is scheduled for
today, August 10, 2016 at 8:00 a.m. ET. A replay of the call will be
available today at 11:00 a.m. ET; to access the replay, dial (877)
870-5176 for domestic callers or dial (858) 384-5517 for international
callers and enter access code 5048309. The conference call will also be
webcast live in the investor relations section of www.michaelkors.com.
The webcast will be accessible on the website for approximately 90 days
after the call.
Use of Non-GAAP Financial Measures
Constant currency effects are non-GAAP financial measures, which are
provided to supplement our reported operating results to facilitate
comparisons of our operating results and trends in our business,
excluding the effects of foreign currency rate fluctuations. Because we
are a global Company, foreign currency exchange rates may have a
significant effect on our reported results. We calculate constant
currency measures and the related foreign currency impacts by
translating the current-year’s reported amounts into comparable amounts
using prior year’s foreign exchange rates for each currency. All
constant currency performance measures discussed below should be
considered a supplement to and not in lieu of our operating performance
measures calculated in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP").
Additionally, this earnings release includes certain non-GAAP financial
measures relating to certain one-time costs associated with the
acquisition of the Greater China licensee. The Company uses non-GAAP
financial measures, among other things, to evaluate its operating
performance and in order to represent the manner in which the Company
conducts and views its business. The Company believes that excluding
non-recurring items helps its management and investors compare operating
performance based on its ongoing operations. While the Company considers
the non-GAAP measures to be useful supplemental measures in analyzing
its results, they are not intended to replace, nor act as a substitute
for, any amounts presented in its consolidated financial statements
prepared in conformity with U.S. GAAP and may be different from non-GAAP
measures reported by other companies.
About Michael Kors
Michael Kors is a world-renowned, award-winning designer of luxury
accessories and ready-to-wear. His namesake company, established in
1981, currently produces a range of products under Michael Kors
Collection, MICHAEL Michael Kors and Michael Kors Mens, including
accessories, footwear, watches, jewelry, ready-to-wear and a full line
of fragrance products. Michael Kors stores are operated, either directly
or through licensing partners, in some of the most prestigious cities in
the world, including New York, Beverly Hills, Chicago, London, Milan,
Paris, Munich, Istanbul, Dubai, Seoul, Tokyo and Hong Kong.
Forward Looking Statements
This press release contains forward-looking statements. You should
not place undue reliance on such statements because they are subject to
numerous uncertainties and factors relating to the Company’s operations
and business environment, all of which are difficult to predict and many
of which are beyond the Company’s control. Forward-looking statements
include information concerning the Company’s possible or assumed future
results of operations, including descriptions of its business strategy.
These statements often include words such as "may," "will," "should,"
"believe," "expect," "seek," "anticipate," "intend," "plan," "estimate"
or similar expressions. The forward-looking statements contained in this
press release are based on assumptions that the Company has made in
light of management’s experience in the industry as well as its
perceptions of historical trends, current conditions, expected future
developments and other factors that it believes are appropriate under
the circumstances. You should understand that these statements are not
guarantees of performance or results. They involve known and unknown
risks, uncertainties and assumptions. Although the Company believes that
these forward-looking statements are based on reasonable assumptions,
you should be aware that many factors could affect its actual financial
results or results of operations and could cause actual results to
differ materially from those in these forward-looking statements. These
factors are more fully discussed in the "Risk Factors" section and
elsewhere in the Company’s Annual Report on Form 10-K for the fiscal
year ended April 2, 2016 (File No. 001-35368), filed on June 1, 2016
with the U.S. Securities and Exchange Commission.
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
Licensing revenue
30.6
38.7
Cost of goods sold
396.6
382.4
Total operating expenses
404.4
355.0
Income from operations
186.9
248.6
Other (income) expense, net
(0.3 )
0.8
Interest expense, net
0.3
0.1
Foreign currency losses
1.3
0.7
Income before provision for income taxes
185.6
247.0
Provision for income taxes
39.3
72.6
Less: Net loss attributable to noncontrolling interest
(0.8 )
--
Net income attributable to MKHL
$ 147.1
$
174.4
Weighted average ordinary shares outstanding:
Diluted
176,613,751
200,054,494
Net income per ordinary share:
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
Cash and cash equivalents
$
337.1
$
702.0
$
808.5
Receivables, net
202.8
307.9
252.5
Inventories
606.9
546.8
606.5
Prepaid expenses and other current assets
109.3
113.1
118.1
Total current assets
1,256.1
1,669.8
1,785.6
Property and equipment, net
798.7
758.2
624.2
Intangible assets, net
464.3
67.4
68.9
Deferred tax assets
16.9
24.5
21.4
Total assets
$ 2,690.7
$ 2,566.8
$ 2,545.2
Liabilities and Shareholders’ Equity
Accounts payable
$
167.4
$
131.4
$
172.1
Accrued payroll and payroll related expenses
43.1
59.7
38.7
Accrued income taxes
45.0
51.6
29.7
Accrued expenses and other current liabilities
197.8
192.8
94.9
Total current liabilities
701.9
435.5
335.4
Deferred rent
120.5
106.4
94.8
Deferred tax liabilities
88.5
3.5
5.9
Other long-term liabilities
22.1
19.6
19.9
Total liabilities
933.0
567.3
456.0
Commitments and contingencies
Ordinary shares, no par value; 650,000,000 shares authorized;
shares issued and 168,997,105 outstanding at July 2, 2016;
shares issued and 176,441,891 outstanding at April 2, 2016,
207,184,790 shares issued and 193,372,032 outstanding at June 27,
(2,054.5 )
(1,650.1 )
(848.8 )
Treasury shares, at cost (39,762,184 shares at July 2, 2016;
shares at April 2, 2016; and 13,812,758 shares at
Additional paid-in capital
732.5
718.9
662.5
Accumulated other comprehensive loss
(78.3 )
(80.9 )
(67.6 )
Retained earnings
3,154.9
3,007.8
2,343.1
Total shareholders’ equity of MKHL
1,754.6
1,995.7
2,089.2
Noncontrolling interest
3.1
3.8
--
Total shareholders’ equity
1,757.7
1,999.5
2,089.2
Total liabilities and shareholders’ equity
$ 2,690.7
$ 2,566.8
$ 2,545.2
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED SEGMENT DATA
Revenue by Segment and Region:
Retail net sales:
The Americas
$ 392.2
$
396.7
Total Retail Net Sales
562.9
523.3
Wholesale net sales:
The Americas
282.1
309.1
Total Wholesale Net Sales
394.4
424.0
Licensing revenue:
The Americas
16.5
21.5
Total Licensing Revenue
30.6
38.7
Total Revenue
$ 987.9
$
986.0
Total Income from Operations
$ 186.9
$
248.6
Total Operating Margin
18.9
%
25.2
%
Store Count and Square Footage by Region:
Store Count
Square Footage
The Americas (U.S., Canada and Latin America)
393
1,210,264
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
Three Months Ended
% Change
July 2,
June 27,
As
Constant
Retail net sales
$ 562.9
$ 523.3
7.6 %
7.4 %
Wholesale net sales
394.4
424.0
(7.0 )%
(7.2 )%
Licensing revenue
30.6
38.7
(20.9 )%
(20.9 )%
Total revenue
$ 987.9
$ 986.0
0.2 %
-- %
NON-GAAP RECONCILIATION OF REPORTED NET INCOME
TO ADJUSTED NET INCOME AND NET INCOME PER SHARE, EXCLUDING
RELATED TO ACQUISITION OF THE GREATER CHINA BUSINESS
(In millions, except share and per share data)
Net income attributable to MKHL, as reported
$
147.1
Transaction costs related to acquisition of Greater China, net of
8.9
Net income, as adjusted
$
156.0
Weighted average diluted ordinary shares outstanding
176,613,751
Diluted net income per ordinary share attributable to MKHL, as
$
0.83
Impact of transaction costs, per share
$
0.05
Adjusted diluted net income per ordinary share attributable to MKHL
$
0.88
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SOURCE: Michael Kors Holdings Limited
Jean Fontana, 203-682-8200
Alecia Pulman, 646-277-1231
