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What's in the Cards for Michael Kors (KORS) in Q2 Earnings?

Michael Kors Holdings Limited KORS is scheduled to report second-quarter fiscal 2018 results on Nov 6. In the last quarter, the company delivered a positive earnings surprise of 29%. Let’s see how things are shaping up prior to this announcement.

Well Michael Kors has a remarkable history, at least in terms of the bottom line. The company continued its positive earnings surprise streak for the eighth consecutive quarter, when it reported first-quarter fiscal 2018 results. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 10.6%.

Well the obvious question that comes to mind, will Michael Kors be able to sustain its positive earnings surprise streak in the second quarter. Well past trends do indicate toward that direction but it will not be wise to jump to a conclusion without analyzing the factors at play.

The current Zacks Consensus Estimate for the quarter is 83 cents, reflecting a year-over-year decline of over 12%. Analysts polled by Zacks expect revenues of $1,046 million, down over 3.9% from the year-ago quarter.

Factors at Play

Waning Comps Hurting Top Line

Stiff competition, falling comps, aggressive promotional environment and waning mall traffic are making things tough for Michael Kors. We noted that comparable sales had fallen 5.9% in the first quarter of fiscal 2018, following declines of 14.1%, 6.9%, 5.4% and 7.4% in the fourth, third, second and first quarter of fiscal 2017, respectively. The company is also struggling with its top-line performance. After registering meager growth of 0.2% in the first quarter of fiscal 2017, it had declined 3.7%, 3.2% and 11.2% in the second, third and fourth quarters of fiscal 2017. In the first-quarter of fiscal 2018, revenues declined 3.6%.

Wholesale Segment’s Dismal Run to Continue

We remained concerned about Michael Kors’ wholesale segment performance, which has witnessed a sharp decline in the previous few quarters. This segment is likely to report dismal performance in the second quarter as well. The analysts polled by Zacks expect revenues from the segment to decline 10.9% year over year to $403 million primarily due to dismal performance in both the North American and European regions.

In first-quarter fiscal 2018, wholesale segment sales declined 23% after witnessing a decline of 22.8%, 17.8%, 18.4% and 7% in the fourth, third, second and first quarters of fiscal 2017, respectively.

However, revenues from retail segment are likely to witness a marginal gain in the second quarter. Per the analyst surveyed by Zacks, revenues from retail segment are likely to increase by 1.1% to $604 million owing to robust performance in the Asian region. Meanwhile, licensing revenues are expected to witness a decline of 2.8%.

Strategic Endeavors

Michael Kors has been constantly deploying resources to expand product offerings, open new stores, and build shop-in-shops along with upgrading information system and distribution infrastructure. Management intends to upgrade e-commerce platform and expects the channel to be a significant contributor in the long run. We note that despite the possibility of heavy investments weighing upon the margins in the short term, management continues to take up strategic endeavors.

Michael Kors Holdings Limited Price, Consensus and EPS Surprise

What the Zacks Model Unveils?

Well our proven model does not conclusively show that Michael Kors is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. Michael Kors has an Earnings ESP of -1.33%. So, although the company carries a Zacks Rank #3, a negative ESP makes surprise prediction difficult. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Nomad Foods Limited NOMD has an Earnings ESP of +8.70% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, Ltd. GIII has an Earnings ESP of +0.87% and a Zacks Rank #1.

Energizer Holdings Inc ENR has an Earnings ESP of +0.35% and a Zacks Rank #2.

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