Michael Kors is in the middle of pulling off a comeback.
The company reported that retail net sales increased 22% for the most recent quarter. Comparable sales improved by 0.3%, which isn’t much, but shows some promise. (This time last year, retail net sales increased 14.9% and comparable sales had been down 1.7%.)
Shares surged as much as 10% on the news.
In a statement, CEO and Chairman John D. Idol pointed to how the company improved marketing and product design. He also gave several examples of growth opportunities in the future.
“Looking ahead, we see multiple growth opportunities, including the expansion of our international markets, the growth of our digital e-commerce flagships, the build-out of our men’s business, the launch of Michael Kors ACCESS wearable technology line, and the continued design innovation of our luxury fashion product, which we believe will enable us to deliver sustainable earnings growth and continue to return value to our shareholders.”
Additionally, Nordstrom recently refuted a claim from a Wedbush report that said that more than half of Nordstrom full-line stores were scaling back on selling Michael Kors bags. A spokesperson for Nordstrom told Business Insider it was not discontinuing its relationship with the company.
“We value our relationship with Michael Kors and hold them in the highest esteem,” Nordstrom co-president Pete Nordstrom recently told Women’s Wear Daily recently.”They have been good partners over the years and we plan on carrying their product in select stores and online.”
Lupine Skelly, who wrote the Wedbush report, told WWD that her “take was not that this is a complete elimination of the brand [from Nordstrom stores], but that it is a massive reduction of the sku count reflecting that Michael Kors is coming out of favour with higher-end consumers” and that reporters exaggerated the story.
Not everyone is on board with the company’s turnaround just yet.
Neil Saunders, CEO of retail consulting firm Conlumino, said that much of the growth came from “expansionary activities” versus “underlying productivity” in a note to clients. In other words, Michael Kors’ sales only increased because it expanded to new stores and markets. Results in existing stores are more lukewarm.
Michael Kors has to fight several factors plaguing the retail industry in order to be cool again.
The company has been long struggling to retain its status as a luxury brand thanks to the prominence of outlet stores, which sell a lower-tiered version of its high namesake product, retail expert Robin Lewis has pointed out on his blog, The Robin Report. Once people pay $200 for a handbag at the outlet, it’s unlikely they will pay $500 in stores.
Saunders believes that “consumer interest in the brand seems to have peaked” in North America, but that there’s hope for continued growth internationally.
And it appears there still may be some issues at department stores.
A recent Morgan Stanley report highlighted how both of Macy’s and Nordstrom saw a “deceleration in the handbag category” in the most recent quarter, which means that Michael Kors probably isn’t helping. Macy’s and Nordstrom both reported poor earnings this past quarter.
All of that points to a fragile positioning for Michael Kors, which will need to continue to prove that consumers should purchase its products. Fortunately for the company, it’s doing better than one of its competitors for the time being.
“That said, even with the variances, we believe that Michael Kors is showing a much better growth story than many rival brands, including Coach.” Coach has been renovating stores and cutting back on discounts.
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