Michael Kors Q4 Earnings Beat Ests - Analyst Blog

Michael Kors Holdings Ltd. KORS continues its fabulous run as the company came up with yet another stellar quarterly performance. The company's fourth-quarter fiscal 2014 earnings per share of 78 cents came way ahead of the Zacks Consensus Estimate of 68 cents per share while rising 56.0% year over year.

For fiscal 2014, earnings per share came in at $3.22, topping the Zacks Consensus Estimate of $3.12 per share while rising 63.5% year over year.

The company's quarterly revenues of $917.5 million handily surpassed the Zacks Consensus Estimate of $823.0 million and grew nearly 53.6% year over year. Full year revenues of $3,310.8 million, exceeded the Zacks Consensus Estimate of $3,190.0 million and increased 51.8% year over year.

Strong performance across all segments and geographies facilitated this growth.

Comparable store sales (comps) increased 26.2% in the quarter, making this the 32nd straight quarter of comps growth.  

Gross profit surged 54.2% year over year to $549.4 million, while gross margin grew 20 basis points (bps) to 59.9%. Operating profit increased 58.3% year over year to $245.9 million and operating margin expanded 80 bps to 26.8%.

Segment performance

Net sales for the Retail segment grew 49.7% year over year to $408.4 million aided by a comps rise of 26.2% and opening of 101 new stores over the past year. Operating profit increased 14.5% to $89.7 million.

For the Wholesale segment, revenue increased 55.5% to $473.7 million while operating profit grew 87.5% to $139.5 million.

Licensing segment revenues rose 79.1% to $35.4 million while operating profit grew substantially to $16.7 million. The growth was attributed to strong the performance of fragrance, luxury watch and eyewear businesses.

Regional Performance

Revenues across North America (U.S. and Canada) grew 43.0% to $739.4 million while comps jumped 20.6% driven by solid demand for watches and accessories. Additionally, the region's wholesale also contributed to the rise with improved sales in accessories and footwear as well as the ongoing transformations of shop-in-shops into department stores.

In Europe, increasing brand recognition and demand led to whopping 125% rise in revenues, which came in at $164.7 million. Comps in the region stood out registering a 62.7% growth over the past year.

Lastly, revenue grew 88.5% year over year to $13.4 million in the Other Regions, including the markets of Japan, Latin America and the Far East.

Other Financial Data

As of Mar 29, 2014, Michael Kors had cash and cash equivalents of $955.1 million and shareholders' equity of nearly $1,806.1 million.

At the end of fiscal 2014, Michael Kors operated 555 stores across the globe, inclusive of licensed locations.

Guidance

Management initiated fiscal 2015 guidance, and expects first-quarter fiscal 2015 revenues to be $840–$850 million, comps to increase 20% and earnings per share to be 78–80 cents. The tax rate is likely to be around 33.5%. The Zacks Consensus Estimate is pegged at 79 cents per share.

For the full year, revenues are likely to be in the range of $4.0–$4.1 billion, while comps are projected to increase in the high teens. Earnings are expected to be in the range of $3.85–$3.91 per share. The Zacks Consensus Estimate is pegged at $3.82 per share, which could see upward revision in the coming days.

Our Take

Michael Kors has performed impressively in the last few quarters. This Zacks Rank #3 (Hold) stock is seeking to carve out a niche in the high-end retail sector by broadening its footprint in strategic markets and offering merchandise that caters to the fashion elites.

In addition to its watch and handbag collection, Michael Kors is now focused on enhancing its apparel, footwear and other miscellaneous categories to compete better with peers like Coach Inc. COH, Hanesbrands Inc. HBI and Ralph Lauren Corp. RL.