Michael Kors Ends FY16 in Style

Better-than-expected revenue growth driven by e-commerce sales and new store openings

Source: Company's Website
Source: Company’s Website

Global luxury lifestyle brand Michael Kors Holdings Limited (NYSE: KORS) announced its financial results for Q4 FY16 and full-year FY16 ended April 2nd, 2016 on June 1st, 2016.

For Q4 FY16, the Company’s total revenue swelled 10.9% to $1.2 billion from $1.1 billion in the comparable quarter last year. On a constant currency basis, total revenue grew by 11.7%.

Michael Kors’ retail net sales for Q4 FY16 jumped 22% to $572.6 million, mainly driven by online sales from the Company’s digital flagship stores and 142 new store openings as compared to the year-ago period. Comparable sales, a key indicator of a retailer’s health, increased 0.3% during the quarter under review. On a constant currency basis, retail net sales grew 23.4%, and comparable sales increased 1.5%. Wholesale net sales increased 3.5% to $590.5 million during Q4 FY16. On a constant currency basis, the Company’s wholesale net sales grew 4.0%, while licensing revenue decreased 13.6% to $35.6 million.

Q4 FY16 financials

In the Americas, total revenue grew 4.6% to $879.1 million on a reported basis, and by 5.1% on a constant currency basis. Michael Kors’ revenue in Europe increased 15.6% to $254.1 million on a reported basis, and 18.1% on a constant currency basis. It is noteworthy to state the fact that revenue in Asia surged to a staggering 216.4% to harvest $65.5 million on a reported basis and by a sweeping 212.1% on a constant currency basis.

Spurred by a jump in revenue, the Company’s gross profit increased 10.5% to $697.2 million during Q4 FY16. Gross profit as a percentage of total revenue was 58.2%. Gross profit margin fell by 100 basis points from 58.4% in the year-ago quarter due to fluctuating foreign currency exchange rates.

As a percentage of total revenue, the Company’s income from operations was 20.4%, or $244.1 million, during Q4 FY16, compared to $256.2 million, or 23.7% as a percentage of total revenue, in the year-ago quarter.

Despite the increase in sales and gross profit, Michael Kors’ net income in Q4 FY16 dropped to $177 million, or $0.98 a share, compared with $182.6 million, or $0.90 a share, in the year-earlier period, weighed down by a 28.2% tax rate and $180.4 million weighted average diluted shares outstanding, which included foreign currency exchange rates fluctuations of approximately $0.02 per share.

Full-year FY16 results

For the full year FY16, Michael Kors’ total revenue increased 7.8% to $4.7 billion from $4.4 billion in full year FY15. On a constant currency basis, total revenue increased 11.7%. Retail net sales, during the year, grew 12.2% to $2.4 billion, while comparable sales decreased 4.2%. On a constant currency basis, retail net sales grew 17.2%, and comparable sales decreased 0.9%. Wholesale net sales inched up 3.8% to $2.1 billion and on a constant currency basis, wholesale net sales grew 6.8%. Licensing revenue grew 0.9% to $173.3 million.

Full-year FY16 financials

Michael Kors’ gross profit during FY16 grew 5.6% to $2.8 billion, and as a percentage of total revenue was 59.4%, compared to 60.6% in FY15. Income from operations decreased to $1.2 billion during FY16 from $1.3 billion in FY15. As a percentage of total revenue, income from operations declined to 24.9% in FY16 compared to 28.8% in FY15.

For FY16, Michael Kors’ net income declined to $839.1 million, or $4.44 per diluted share, based on 189.1 million weighted average diluted shares outstanding, and foreign currency fluctuations of approximately $0.02 per share. This can be compared to a higher net income of $881.0 million, or $4.28 per diluted share, in FY15, based on 205.9 million weighted average diluted shares outstanding.

Purchase of Greater China licensee

Michael Kors purchased Michael Kors (HK) Limited, the exclusive licensee of the Company in China on May 31, 2016, for $500 million in cash. The Greater China business reported total revenue of $197 million for the year ended March 31st, 2016. It had a network of 91 company operated retail stores and six travel retail locations across China, Hong Kong, Macau, and Taiwan.

For FY17, the Greater China business is expected to contribute about $200 million to retail net sales, considering sales for the 10-month period following the acquisition.

Share Repurchases

During Q4 FY16, Michael Kors repurchased 3,690,685 of the Company’s ordinary shares for approximately $200 million. So far since October 2014, the Company has repurchased 31,516,857 shares for approximately $1.6 billion. As of April 2nd, 2016, the remaining availability under the share repurchase program was $358.1 million.

In addition, the Company authorized a new $1 billion share repurchase program, which replaces the remaining balance of the previous program authorized in October 2014.

Guidance for Q1 FY17

Despite the choppy retail scenario, Michael Kors ended the year on a strong note as compared to other luxury retailers such as Coach Inc. (NYSE: COH) and Fossil Group Inc. (NASDAQ: FOSL), with better-than-expected revenue and EPS in Q4 FY16 as well as for full-year FY16. For FY17, the Company is looking to expand into the international markets, grow its digital e-commerce flagships, and launch the Michael Kors ACCESS wearable technology line. Cheered by the buoyant results, the Company is now expecting Q1 FY17 EPS of $0.62 to $0.66, and adjusted EPS of $0.70 to $0.74. The Company expects total revenue to be between $940 million and $950 million, and comparable sales to decrease in the mid-single digit range.

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