Market Overview

Michael Kors Holdings Limited Announces Second Quarter Fiscal 2019 Results

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Second Quarter Results Exceed Expectations

Jimmy Choo Results Better than Anticipated

Raises Full Year Adjusted Earnings per Share Outlook to $4.95 to
$5.05 from $4.90 to $5.00

Michael Kors Holdings Limited (NYSE:KORS), a global fashion luxury
group, today announced its financial results for the fiscal 2019 second
quarter ended September 29, 2018.

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20181107005295/en/

MICHAEL KORS (Photo: Business Wire)

MICHAEL KORS (Photo: Business Wire)

Second Quarter Fiscal 2019 Highlights

  • Delivered better than anticipated gross margin, operating margin and
    earnings per share
  • Revenues and comparable store sales in line with expectations
  • Michael Kors brand revenues were down 0.8%, in line with expectations
    • Comparable store sales were down low single digits, in line with
      expectations
    • Wholesale revenues exceeded expectations, reflecting strength in
      the Americas
  • Jimmy Choo delivered better than anticipated revenues driven by
    strength in footwear

John D. Idol, the Company's Chairman and Chief Executive Officer, said,
"We are pleased to report results that have again exceeded our
expectations, and are raising our fiscal 2019 EPS guidance to a range of
$4.95 to $5.05, reflecting double digit earnings growth for the year. As
we enter the second half of fiscal 2019 we look forward to welcoming
Versace into our group. With the acquisition of Versace we have built
one of the world's leading fashion luxury groups in just one year,
setting the stage for accelerated revenue and earnings growth. This is a
truly remarkable and historic moment for our company and we look forward
to completing this transformational acquisition in the coming months."

Second Quarter Fiscal 2019 Results

Financial Results and non-GAAP Reconciliation

The Company's results are reported in this press release in accordance
with accounting principles generally accepted in the United States
("U.S. GAAP") and on an adjusted, non-GAAP basis. A reconciliation of
GAAP to non-GAAP financial information is provided at the end of this
press release.

Overview of MKHL Second Quarter Fiscal 2019
Results:

  • Total revenue increased 9.3% to $1.25 billion, including a $116.7
    million contribution from Jimmy Choo.
  • Gross profit was $763.1 million and gross margin was 60.9%, compared
    to $690.8 million and 60.2% in the prior year. Adjusted gross profit
    was $765.4 million and adjusted gross margin was 61.0%, compared to
    $690.8 million and 60.2% in the prior year.
  • Income from operations was $189.4 million and operating margin was
    15.1% compared to $199.1 million and 17.4% in the prior year. Adjusted
    income from operations was $216.9 million and operating margin was
    17.3%, compared to $237.4 million and 20.7% in the prior year.
  • Net income was $137.6 million, or $0.91 per diluted share compared to
    $202.9 million, or $1.32 per diluted share in the prior year. Adjusted
    net income was $192.5 million, or $1.27 per diluted share, compared to
    $204.5 million, or $1.33 per diluted share, in the prior year.

Michael Kors Segments Second Quarter Fiscal
2019 Results:

  • Michael Kors Retail revenue of $643.9 million was approximately flat
    compared to the prior year. Comparable store sales decreased 2.1%,
    which was in line with expectations. On a constant currency basis,
    comparable store sales decreased 1.3%.
  • Michael Kors Retail operating income was $67.9 million and operating
    margin was 10.5%, compared to $69.0 million and 10.7% in the prior
    year. Adjusted operating income was $79.6 million while adjusted
    operating margin was 12.4%, compared to $99.2 million and 15.4% in the
    prior year.
  • Michael Kors Wholesale revenue declined 1.3% to $457.8 million
    compared to the prior year.
  • Michael Kors Wholesale operating income was $130.1 million and
    operating margin was 28.4%, compared to $119.6 million and 25.8% in
    the prior year. On an adjusted basis operating income was $134.2
    million while adjusted operating margin was 29.3% compared to $126.5
    million and 27.3% in the prior year.
  • Michael Kors Licensing revenue decreased 6.8% to $35.4 million
    compared to the prior year.
  • Michael Kors Licensing operating income was $9.8 million and operating
    margin was 27.7%, compared to $10.5 million and 27.6% in the prior
    year. On an adjusted basis operating income was $10.5 million and
    operating margin was 29.7%, compared to $11.7 million and 30.8% in the
    prior year.
  • Inventory for the Michael Kors brand at September 29, 2018 was $619.7
    million, an 11% decrease as compared to the prior year.

Jimmy Choo Second Quarter Fiscal 2019 Results:

  • Jimmy Choo revenue was $116.7 million. The company acquired Jimmy Choo
    on November 1, 2017, and compared to Jimmy Choo stand-alone results
    from the prior year, revenue increased double digits.
  • Jimmy Choo operating loss was $18.4 million and adjusted operating
    loss was $7.4 million.

Outlook

The Company is raising full year adjusted earnings per share guidance by
$0.05 to $4.95 to $5.05, reflecting better than expected second quarter
performance for both the Michael Kors and Jimmy Choo brands.

For the full year, the Company continues to expect total revenue to be
approximately $5.125 billion, including between $580 million and $590
million of incremental Jimmy Choo revenue. Reported comparable store
sales for Michael Kors is expected to be down in the low single digits,
primarily driven by an unfavorable currency impact. The Company has
raised guidance for operating margin to approximately 18.2%. Diluted
earnings per share are expected to be in the range of $4.95 to $5.05.
The Company continues to expect EPS dilution from Jimmy Choo of $0.05 to
flat. Earnings per share guidance assumes approximately 152 million
weighted average diluted shares outstanding and a tax rate of
approximately 15.5%.

For the third quarter of fiscal 2019, the Company expects total revenue
of approximately $1.46 billion, including approximately $165 million of
incremental revenue from Jimmy Choo. The Company expects third quarter
retail revenue for Michael Kors to grow in the low single digits.
Comparable store sales on a reported basis are expected to decline in
the low single digits, primarily due to an unfavorable foreign currency
impact. The Company expects wholesale revenue to decrease in the high
single digits, and licensing revenue to decline in the mid-teens.
Operating margin is expected to be approximately 20.8%. Diluted earnings
per share are expected to be in the range of $1.52 to $1.57, which
includes approximately $0.04 to $0.06 of accretion from Jimmy Choo.
Earnings per share assumes approximately 152 million weighted average
diluted shares outstanding and a tax rate of approximately 20%.

Conference Call Information

A conference call to discuss second quarter results is scheduled for
today, November 7, 2018 at 8:30 a.m. ET. A live webcast of the
conference call will be available on the Company's investor relations
website, www.investors.michaelkors.com.
In addition, a replay will be available shortly after the conclusion of
the call and remain available until November 15, 2018. To access the
telephone replay, listeners should dial 1-844-512-2921 or 1-412-317-6671
for international callers. The access code for the replay is 5309233. A
replay of the webcast will also be available within two hours of the
conclusion of the call and will remain on the website for 90 days.

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 U.S. GAAP. Additionally, this
earnings release includes certain non-GAAP financial measures relating
to certain one-time costs associated with the Jimmy Choo acquisition and
the agreement to acquire Versace and restructuring and non-cash
impairment charges primarily associated with underperforming retail
stores. 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 Holdings Limited

Michael Kors Holdings Limited is a global fashion luxury group,
consisting of iconic brands that are industry leaders in design, style
and craftsmanship. Its brands cover the full spectrum of fashion luxury
categories including women's and men's accessories, footwear and apparel
as well as wearable technology, watches, jewelry, eyewear and a full
line of fragrance products. The Company's goal is to continue to extend
the global reach of its brands while ensuring that they maintain their
independence and exclusive DNA. Michael Kors Holdings Limited is
publicly listed on the New York Stock Exchange under the ticker KORS. As
previously announced, in connection with the closing of the Company's
acquisition of Versace, anticipated to occur in the Company's fourth
fiscal quarter, the Company will rename itself Capri Holdings Limited
(NYSE:CPRI).

Forward Looking Statements

This press release contains statements which are, or may be deemed to
be, "forward-looking statements." Forward-looking statements are
prospective in nature and are not based on historical facts, but rather
on current expectations and projections of the management of Michael
Kors Holdings Limited (the "Company") about future events, and are
therefore subject to risks and uncertainties which could cause actual
results to differ materially from the future results expressed or
implied by the forward-looking statements. All statements other than
statements of historical facts included in this press release may be
forward-looking statements. Without limitation, any statements preceded
or followed by or that include the words "targets", "plans", "believes",
"expects", "aims", "intends", "will", "should", "could", "would", "may",
"anticipates", "estimates", "synergy", "cost-saving", "projects",
"goal", "strategy", "budget", "forecast" or "might" or, words or terms
of similar substance or the negative thereof, are forward-looking
statements. Forward-looking statements include statements relating to
the following: (i) the expected effects of the Versace acquisition on
the Company, (ii) the expected timing and scope of the Versace
acquisition, (iii) future capital expenditures, expenses, revenues,
earnings, economic performance, indebtedness, financial condition, share
buybacks, dividend policy, losses and future prospects; (iv) business
and management strategies and the expansion and growth of the Company's
and Versace's operations and benefits from the acquisition; and (v) the
effects of government regulation on the Company's or Versace's business.

These forward-looking statements are not guarantees of future
financial performance. Such forward-looking statements involve known and
unknown risks and uncertainties that could significantly affect expected
results and are based on certain key assumptions. Many risks,
uncertainties and other factors could cause actual results to differ
materially from those projected or implied in any forward-looking
statements. These risks, uncertainties and other factors include the
satisfaction of the conditions to consummating the Versace acquisition,
timing of closing of the Versace acquisition, the Company's ability to
integrate the businesses successfully and to achieve anticipated
benefits of the Versace acquisition; the risk of disruptions to the
Company's or Versace's businesses; the negative effects of the
announcement of the proposed Versace acquisition or the consummation of
the proposed acquisition on the market price of the Company's ordinary
shares and its operating results; significant transaction costs; unknown
liabilities; the risk of litigation and/or regulatory actions related to
the proposed Versace acquisition; fluctuations in demand for the
Company's and Versace's products; future levels of indebtedness; future
availability of credit; the timing and scope of future share buybacks,
which may be suspended at any time due to market conditions and the
level of other investing activities and uses of cash, including in
connection with the pending Versace acquisition; changes in consumer
traffic and retail trends; loss of market share and industry
competition; fluctuations in the capital markets; fluctuations in
interest and exchange rates; the occurrence of unforeseen disasters or
catastrophes; political or economic instability in principal markets;
adverse outcomes in litigation; and general, local and global economic,
political, business and market conditions, as well as those risks set
forth in the reports that the Company files from time to time with the
U.S. Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2018 (File No.
001-35368). Other unknown or unpredictable factors could cause actual
results to differ materially from those in the forward-looking
statements. Such forward-looking statements should therefore be
construed in the light of such factors. Unless otherwise required by
applicable law, the Company does not provide any representation,
assurance or guarantee that the occurrence of the events expressed or
implied in any forward-looking statements in this press release will
actually occur. Due to such uncertainties and risks, readers are
cautioned not to place undue reliance on such forward-looking
statements. All subsequent oral or written forward-looking statements
attributable to the Company are expressly qualified in their entirety by
the cautionary statement above. The Company disclaims any obligation to
update or revise any forward-looking or other statements contained
herein other than in accordance with legal and regulatory obligations.

 

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

September 29,
2018

 

September 30,
2017

September 29,
2018

 

September 30,
2017

Total revenue $ 1,253.8 $ 1,146.6 $ 2,456.3 $ 2,099.0
Cost of goods sold 490.7   455.8   942.4   833.5  
Gross profit 763.1 690.8 1,513.9 1,265.5
Total operating expenses 573.7   491.7   1,109.3   917.0  
Income from operations 189.4
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