What To Listen For In Michael Kors' Upcoming Quarterly Conference Call

“Expectations have clearly come down for Michael Kors Holdings Ltd KORS's fiscal third-quarter print, given nearly across-the-board disappointing holiday results from brands and retailers,” Deutsche Bank’s Dave Weiner said in a note, while maintaining a Buy rating on the company and lowering the price target from $56 to $50.

Headwinds To Abate

The analyst explained that while the estimates had been lowered to reflect uncertainties, the significant headwinds faced by the company from FX, tourism and cycling would begin to abate, while new product innovation would provide support.

“Further, gross margin benefits from geo./channel shift help offset promotional pressures, SG&A spend should slow meaningfully next FY, and valuation is accommodative,” Weiner mentioned.

Among the things to listen to during Michael Kors’ FQ3 call is top-line trends, which is what investors have been primarily interested in.

FQ3 Expectations

The same store sales estimate for FQ3 has been lowered by 1 point to -6 percent, in-line with the market’s range of -6–7 percent.

Weiner noted that Michael Kors’ significant, planned wholesale channel rationalization would help make the brand healthier over time, although a decline in the double-digit percent growth was likely to pressure wholesale revenues at least through FQ2:18.

On the other hand, the analyst believes that tourism in the U.S. should be “less negative” for the company, given the recent comments by other retailers. In addition, the pressure witnessed by Michael Kors due to terrorism in Europe should start to cycle.

“Finally, we’re generally encouraged by product development, including from ACCESS, an expanded men’s line, footwear, & broader color palette in women’s handbags & clothing,” Weiner added.