KORS
$48.37
Michael Kors Holdings
($.10)
(.21%)
Earnings Details
2nd Quarter September 2016
Thursday, November 10, 2016 4:15:04 PM
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Summary

Michael Kors Holdings Beats but Guides Lower

Michael Kors Holdings (KORS) reported 2nd Quarter September 2016 earnings of $0.95 per share on revenue of $1.0 billion. The consensus earnings estimate was $0.88 per share on revenue of $1.1 billion. The Earnings Whisper number was $0.92 per share. Revenue fell 7.1% compared to the same quarter a year ago.

The company said it expects third quarter earnings of $1.61 to $1.65 per share on revenue of $1.365 billion to $1.38 billion. The current consensus earnings estimate is $1.77 per share on revenue of $1.39 billion for the quarter ending December 31, 2016. The company also said it expects fiscal 2017 earnings of $4.37 to $4.43 per share on revenue of approximately $4.55 billion. The company's previous guidance was earnings of $4.56 to $4.64 per share on revenue of approximately $4.71 billion and the current consensus earnings estimate is $4.56 per share on revenue of $4.63 billion for the year ending March 31, 2017.

Michael Kors Holdings Ltd Michael Kors Holdings Ltd is a designer, marketer, distributor and retailer of women’s apparel and accessories and men’s apparel. The Company’s business consists of retail, wholesale and licensing segments.

Results
Reported Earnings
$0.95
Earnings Whisper
$0.92
Consensus Estimate
$0.88
Reported Revenue
$1.05 Bil
Revenue Estimate
$1.08 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Michael Kors Holdings Limited Announces Second Quarter Fiscal 2017 Results

Second Quarter Diluted EPS was $0.95

Michael Kors Holdings Limited (KORS) (the "Company"), a global luxury lifestyle brand, today announced its financial results for the fiscal 2017 second quarter ended October 1, 2016.

For the second quarter ended October 1, 2016:

Total revenue decreased 3.7% to $1.09 billion from $1.13 billion in the second quarter of fiscal 2016. On a constant currency basis, total revenue decreased 3.7%.

Retail net sales increased 12.1% to $597.2 million driven primarily by 198 net new store openings since the end of the second quarter of fiscal 2016, including 137 stores associated with the Company’s recent acquisitions of Greater China and South Korea. Comparable sales decreased 5.4%. On a constant currency basis, retail net sales increased 12.1%, and comparable sales decreased 5.6%. Wholesale net sales decreased 18.4% to $452.2 million and on a constant currency basis, wholesale net sales decreased 18.5%. Licensing revenue decreased 10.2% to $38.8 million.

Total revenue in the Americas decreased 11.1% to $745.1 million on a reported basis and decreased 11.1% on a constant currency basis. European revenue grew 1.9% to $248.0 million on a reported basis, and grew 3.5% on a constant currency basis. Revenue in Asia increased 96.5% to $95.1 million on a reported basis, and increased 87.5% on a constant currency basis.

Gross profit decreased 3.0% to $644.7 million, and as a percentage of total revenue was 59.2%. Foreign currency translation and transaction favorably impacted gross profit margin by approximately 80 basis points. This compares to gross margin of 58.8% in the second quarter of fiscal 2016.

Income from operations was $203.7 million, or 18.7% as a percentage of total revenue. This compares to $273.1 million, or 24.2% as a percentage of total revenue, for the second quarter of fiscal 2016.

Net income attributable to MKHL was $160.9 million, or $0.95 per diluted share, based on a 20.7% tax rate and 168.8 million weighted average diluted shares outstanding. Net income attributable to MKHL for the second quarter of fiscal 2016 was $193.1 million, or $1.01 per diluted share, based on a 28.9% tax rate and 191.5 million weighted average diluted shares outstanding.

At October 1, 2016, the Company operated 787 retail stores, including concessions, compared to 589 retail stores, including concessions, at the end of the same prior-year period. The Company had 118 additional retail stores, including concessions, operated through licensing partners. Including licensed locations, there were 905 Michael Kors stores worldwide at the end of the second quarter of fiscal 2017.

John D. Idol, the Company’s Chairman and Chief Executive Officer, said, "Our second quarter revenue and earnings results were above our expectations, as we continued to deliver innovative luxury fashion product and further expand our footprint worldwide. During the quarter, we continued to execute on our growth strategies with the successful launch of our Michael Kors ACCESS line of smartwatches and fitness trackers, the debut of our new Wonderlust fragrance, our new fall handbag collections, and the further expansion of our men’s offering. We also expanded our online presence, with the launch of digital flagships in several countries in Europe. That said, our results continued to be impacted by the declines in mall traffic and tourism in certain major cities, as well as our strategic decision to reduce sell-in of inventory to the U.S. wholesale channel. Despite these near term challenges, we remain confident in our ability to drive long term growth and increase shareholder value."

For the first six months ended October 1, 2016:

Total revenue decreased 1.9% to $2.08 billion from $2.12 billion in the same period of fiscal 2016. On a constant currency basis, total revenue decreased 2.0%.

Retail net sales increased 9.8% to $1.16 billion. Comparable store sales decreased 6.4%. On a constant currency basis, retail net sales grew 9.8%, and comparable sales decreased 6.6%. Wholesale net sales decreased 13.4% to $846.6 million and on a constant currency basis, wholesale net sales decreased 13.6%. Licensing revenue decreased 15.3% to $69.4 million.

Gross profit for the first six months decreased 2.5% to $1.24 billion, and as a percentage of total revenue was 59.5%. Foreign currency translation and transaction favorably impacted gross profit margin by approximately 90 basis points. This compares to gross margin of 59.9% in the same period in fiscal 2016.

Income from operations for the first six months was $390.6 million, or 18.8% as a percentage of total revenue. For the same period of fiscal 2016, income from operations was $521.7 million, or 24.7% as a percentage of total revenue.

Net income attributable to MKHL for the first six months was $308.0 million, or $1.78 per diluted share, based on a 20.9% tax rate and $172.7 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 six months of fiscal 2017 was $316.9 million, or $1.83 per diluted share. Net income attributable to MKHL for the same period in fiscal 2016 was $367.5 million, or $1.88 per diluted share, based on a 29.1% tax rate and 195.8 million weighted average diluted shares outstanding.

Share Repurchase Program

During the second quarter, the Company repurchased 5,019,083 of the Company’s ordinary shares for approximately $250.0 million in open market transactions. As of October 1, 2016, the remaining availability under the Company’s share repurchase program was $350.0 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 October 1, 2016, the Company had $384.4 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 $615.9 million.

Outlook

For fiscal 2017, the Company now expects total revenue to be approximately $4.55 billion and for comparable sales to decrease in the mid-single digit range. Operating margin is expected to be approximately 20.7% on a non-GAAP basis, excluding $11.3 million in one-time acquisition related costs, and approximately 20.5% on a GAAP basis, including the aforementioned one-time costs. For fiscal 2017, diluted earnings per share are now expected to be in the range of $4.37 to $4.43 on a non-GAAP basis, excluding the one-time costs, and $4.32 to $4.38 on a GAAP basis, including the one-time costs. This assumes 169.5 million weighted average diluted shares outstanding and a tax rate of approximately 21%.

For the third quarter of fiscal 2017, the Company expects total revenue to be between $1.365 billion and $1.380 billion, which includes a planned reduction in wholesale shipments, and a comparable sales decrease in the mid-single digit range. The Company expects operating margin to be approximately 25.0%. Diluted earnings per share are expected to be in the range of $1.61 to $1.65 for the third quarter of fiscal 2017. This assumes 166.5 million weighted average diluted shares outstanding and a tax rate of approximately 21%.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, November 10, 2016 at 4:30 pm. ET. A replay of the call will be available today at 7:30 pm. ET; to access the replay, dial (877) 870-5176 for domestic callers or dial (858) 384-5517 for international callers and enter access code 9809103. 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) and Quarterly Report on Form 10-Q (File No. 001-35368) for the fiscal quarter ended July 2, 2016, filed with the U.S. Securities and Exchange Commission.

SCHEDULE 1
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
(Unaudited)
Three Months Ended
Six Months Ended
October 1,
September 26,
October 1,
September 26,
2016
2015
2016
2015
Net sales
$ 1,049.4
$ 1,086.8
$ 2,006.7
$ 2,034.1
Licensing revenue
38.8
43.2
69.4
81.9
Total revenue
1,088.2
1,130.0
2,076.1
2,116.0
Cost of goods sold
443.5
465.5
840.1
847.9
Gross profit
644.7
664.5
1,236.0
1,268.1
Total operating expenses
441.0
391.4
845.4
746.4
Income from operations
203.7
273.1
390.6
521.7
Other (income) expense, net
(0.3 )
0.1
(0.6 )
0.9
Interest expense, net
1.4
0.4
1.7
0.5
Foreign currency losses
--
1.4
1.3
2.1
Income before provision for income taxes
202.6
271.2
388.2
518.2
Provision for income taxes
41.9
78.4
81.2
151.0
Net income
160.7
192.8
$
307.0
$
367.2
Less: Net loss attributable to noncontrolling interest
(0.2 )
(0.3 )
(1.0 )
(0.3 )
Net income attributable to MKHL
$
160.9
$
193.1
$
308.0
$
367.5
Weighted average ordinary shares outstanding:
Basic
166,695,631
188,857,398
170,427,101
192,917,209
Diluted
168,839,967
191,524,156
172,726,859
195,789,325
Net income per ordinary share:
Basic
$
0.97
$
1.02
$
1.81
$
1.90
Diluted
$
0.95
$
1.01
$
1.78
$
1.88
SCHEDULE 2
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
October 1,
April 2,
September 26,
2016
2016
2015
Assets
Current assets
Cash and cash equivalents
$
186.4
$
702.0
$
431.5
Receivables, net
288.0
307.9
344.1
Inventories
695.7
546.8
713.7
Prepaid expenses and other current assets
146.0
113.1
106.6
Total current assets
1,316.1
1,669.8
1,595.9
Property and equipment, net
801.0
758.2
672.4
Intangible assets, net
463.4
67.4
69.2
Goodwill
119.7
23.2
26.2
Deferred tax assets
19.0
24.5
23.7
Other assets
36.1
23.7
17.1
Total assets
$ 2,755.3
$ 2,566.8
$ 2,404.5
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
$
179.7
$
131.4
$
199.2
Accrued payroll and payroll related expenses
45.8
59.7
44.6
Accrued income taxes
45.5
51.6
26.5
Short-term debt
384.4
--
5.4
Accrued expenses and other current liabilities
176.9
192.8
107.8
Total current liabilities
832.3
435.5
383.5
Deferred rent
126.2
106.4
102.6
Deferred tax liabilities
88.6
3.5
4.6
Long-term debt
--
2.3
4.1
Other long-term liabilities
24.9
19.6
21.0
Total liabilities
1,072.0
567.3
515.8
Commitments and contingencies
Shareholders’ equity
Ordinary shares, no par value; 650,000,000 shares authorized;
--
--
--
209,020,770 shares issued and 164,233,915 outstanding at October 1,
2016; 208,084,175 shares issued and 176,441,891 outstanding at April
2, 2016, and 207,286,133 shares issued and 184,048,990 outstanding
at September 26, 2015
Treasury shares, at cost (44,786,855 shares at October 1, 2016;
(2,304.8 )
(1,650.1 )
(1,248.8 )
31,642,284 shares at April 2, 2016; and 23,237,143 shares at
September 26, 2015)
Additional paid-in capital
749.3
718.9
677.7
Accumulated other comprehensive loss
(79.8 )
(80.9 )
(81.2 )
Retained earnings
3,315.8
3,007.8
2,536.3
Total shareholders’ equity of MKHL
1,680.5
1,995.7
1,884.0
Noncontrolling interest
2.8
3.8
4.7
Total shareholders’ equity
1,683.3
1,999.5
1,888.7
Total liabilities and shareholders’ equity
$ 2,755.3
$ 2,566.8
$ 2,404.5
SCHEDULE 3
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED SEGMENT DATA
($ in millions)
(Unaudited)
Three Months Ended
Six Months Ended
October 1,
September 26,
October 1,
September 26,
2016
2015
2016
2015
Revenue by Segment and Region:
Retail net sales:
The Americas
$
385.6
$
384.8
$
777.8
$
781.5
Europe
131.2
125.6
250.3
232.6
Asia
80.4
22.4
132.0
42.0
Total Retail Net Sales
597.2
532.8
1,160.1
1,056.1
Wholesale net sales:
The Americas
332.6
426.2
614.7
735.3
Europe
104.9
101.8
195.7
194.4
Asia
14.7
26.0
36.2
48.3
Total Wholesale Net Sales
452.2
554.0
846.6
978.0
Licensing revenue:
The Americas
26.9
27.2
43.4
48.7
Europe
11.9
16.0
26.0
33.2
Total Licensing Revenue
38.8
43.2
69.4
81.9
Total Revenue
$ 1,088.2
$ 1,130.0
$ 2,076.1
$ 2,116.0
Income from Operations:
Retail
$
69.6
$
99.9
$
136.2
$
220.8
Wholesale
122.0
156.9
227.0
263.2
Licensing
12.1
16.3
27.4
37.7
Total Income from Operations
$
203.7
$
273.1
$
390.6
$
521.7
Operating Margin:
Retail
11.7
%
18.8
%
11.7
%
20.9
%
Wholesale
27.0
%
28.3
%
26.8
%
26.9
%
Licensing
31.2
%
37.7
%
39.5
%
46.0
%
Total Operating Margin
18.7
%
24.2
%
18.8
%
24.7
%
October 1, 2016
Store Count and Square Footage by Region:
Store Count
Square Footage
The Americas (U.S., Canada and Latin America)
392
1,231,089
Europe
188
496,274
Asia
207
393,649
Total
787
2,121,012
SCHEDULE 4
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSTANT CURRENCY DATA
(In millions)
(Unaudited)
Three Months Ended
% Change
October 1,
September 26,
As
Constant
2016
2015
Reported
Currency
Retail net sales
$
597.2
$
532.8
12.1
%
12.1
%
Wholesale net sales
452.2
554.0
(18.4
)%
(18.5
)%
Licensing revenue
38.8
43.2
(10.2
)%
(10.2
)%
Total revenue
$ 1,088.2
$ 1,130.0
(3.7
)%
(3.7
)%
Six Months Ended
% Change
October 1,
September 26,
As
Constant
2016
2015
Reported
Currency
Retail net sales
$ 1,160.1
$ 1,056.1
9.8
%
9.8
%
Wholesale net sales
846.6
978.0
(13.4
)%
(13.6
)%
Licensing revenue
69.4
81.9
(15.3
)%
(15.3
)%
Total revenue
$ 2,076.1
$ 2,116.0
(1.9
)%
(2.0
)%
NON-GAAP RECONCILIATION OF REPORTED NET INCOME
TO ADJUSTED NET INCOME AND NET INCOME PER SHARE, EXCLUDING
TRANSACTION COSTS
RELATED TO ACQUISITION OF THE GREATER CHINA BUSINESS
(In millions, except share and per share data)
(Unaudited)
Six Months Ended
October 1,
2016
Net income attributable to MKHL, as reported
$
308.0
Transaction costs related to acquisition of Greater China, net of
8.9
taxes of $2.4 million
Net income, as adjusted
$
316.9
Weighted average diluted ordinary shares outstanding
172,726,859
Diluted net income per ordinary share attributable to MKHL, as
$
1.78
reported
Impact of transaction costs, per share
$
0.05
Adjusted diluted net income per ordinary share attributable to MKHL
$
1.83

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SOURCE: Michael Kors Holdings Limited

ICR, Inc.
Jean Fontana, 203-682-8200
jean.fontana@icrinc.com
or
Media:
ICR, Inc.
Alecia Pulman, 646-277-1231
KorsPR@icrinc.com