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Why Michael Kors Holdings Stock Soared Today

What happened

Shares of Michael Kors Holdings (NYSE: KORS) surged Tuesday morning after the luxury fashion giant posted a better-than-expected fiscal first-quarter 2018 earnings report, and lifted its full-year guidance.

As of 12:50 p.m. EDT, the stock was up 21.6%.

Image source: Michael Kors.

So what 

The quarter, which ended July 1, was far from stellar, as comparable sales were down 5.9% (and  4.9% in constant currency), but results still blew past expectations. Revenue fell 3.9% to $952.4 million, compared to analysts' consensus estimate of $918.6 million, as strong performance in China, including the opening of 67 stores, helped offset lagging sales elsewhere. Earnings per share slipped from $0.90 to $0.80, but the result was still well ahead of both  management's own guidance range of $0.60 to $0.64 and the analysts' consensus figure of $0.62.

CEO John Idol said that better-than-expected comparable sales in North America and Europe drove the outperformance, but he emphasized that fiscal 2018 would still be a transition year. He also touted the recent acquisition of Jimmy Choo, saying the purchase will allow the company to form a "global luxury fashion group."

Now what 

Michael Kors also lifted its full-year revenue outlook modestly from $4.25 billion to $4.275 billion, and said it sees comparable sales declining in the mid-single digits as opposed to a prior range of high-single digits. It also bumped up earnings per share expectations from a range of $3.57 to $3.67 to a range of $3.62 to $3.72. 

That guidance does not include the impact from the Jimmy Choo acquisition, which is expected to add $275 million in incremental revenue in the second half of the year and $570 million to $580 million next year.

While it's certainly too early to declare Michael Kors' turnaround a success -- especially given that sales and profits are still falling -- the report and outlook offer some hope that the company can stabilize itself and grow profits again. 

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of Michael Kors Holdings. The Motley Fool has a disclosure policy.