Michael Kors (KORS, -0.24%) is closing up to 125 stores this year as it continues to partially unwind an aggressive expansion that had served it well when its namesake brand was hot. The upscale brand reported on Wednesday that sales at stores open at least a year (comparable sales) fell 14.1% in its most recent quarter, and continue to fall sharply this year. What’s more, Michael Kors’ wholesale business, sales largely made to the struggling department store sector, fell 22.8% in the quarter. Shares fell 6% in premarket trading. The company operates 827 stores, meaning the closings represent up to 15% or so of its fleet.
The poor results continue a difficult stretch for the company launched in the early 1980’s by the former Project Runway judge, a company that for years seemed to be able to do no wrong. Michael Kors Chief Executive John Idol in a statement blamed “a difficult retail environment with elevated promotional levels” while conceding that the product and store experience had gotten a bit stale.
Yet the company has itself to blame for most of its woes. By opening so many stores so quickly to ride the handbag boom earlier this decade and become the largest brand, Michael Kors created a ubiquity that was contradictory to a luxury cachet and hurt its ability to turn out new and exciting products. The idea at the time was to siphon off shoppers from rival Coach (COH, -0.11%) by opening nearby stores at countless malls. For a while it worked, as Kors eclipsed the more established Coach a few years ago. But Coach, which had earlier opened too many stores and cheapened its brand, started closing stores three years ago, seeing this danger before Kors did.
The result is that the Michael Kors brand has become a fixture at off-price stores and outlets. Case in point: Michael Kors merchandise take up about a quarter of the floor space at a Bloomingdale’s outlet. Kors has said it plans to reduce its exposure to U.S. department stores, which are struggling up and down the price spectrum. But for now it has to contend with a quickly shrinking business, much as Coach had to. Coach has now reported four quarters in a row of comparable sales growth in North America, regaining its ability to charge higher prices, and recently agreed to buy Kate Spade, making it an even tougher competitor for Kors. Michael Kors’ stock market value is now less than half of Coach’s.
As for Kors, it forecast revenue of $4.25 billion for fiscal year 2018. Analysts on average had estimated revenue of $4.37 billion, according to Thomson Reuters I/B/E/S. Kors also said it expects high single-digit drop in same-store sales for the fiscal year.Total sales fell 11.2% to $1.06 billion in the fourth quarter ended April 1, while analysts had expected $1.05 billion. Net loss attributable to Michael Kors was $26.8 million, or 17 cents per share, in the latest quarter, compared with net income of $177 million, or 98 cents per share, a year earlier.
By Phil Wahba | Source: Fortune.com