Actionable news
0
All posts from Actionable news
Actionable news in KORS: MICHAEL KORS HOLDINGS LIMITED,

Edited Transcript of KORS earnings conference call or presentation 8-Aug-17 12:00pm GMT

LONDON Aug 8, 2017 (Thomson StreetEvents) -- Edited Transcript of Michael Kors Holdings Ltd earnings conference call or presentation Tuesday, August 8, 2017 at 12:00:00pm GMT

================================================================================

Corporate Participants

================================================================================

* John D. Idol

* Thomas J. Edwards

Michael Kors Holdings Limited - CFO, COO, Executive VP & Treasurer

================================================================================

================================================================================

* Omar Regis Saad

Evercore ISI, Research Division - Senior MD, Head of Softlines, Luxury and Dept Stores Team, and Fundamental Research Analyst

* Randal J. Konik

Nomura Securities Co. Ltd., Research Division - Senior Analyst of U.S. Specialty Retail Equity

================================================================================

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, everyone, and welcome to the Michael Kors First Quarter Fiscal 2018 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Christina Coronios, Director of Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Christina Coronios, [2]

--------------------------------------------------------------------------------

Good morning, and thank you for joining us for our first quarter fiscal 2018 earnings call. Presenting on today's call are John Idol, Chairman and Chief Executive Officer; and Tom Edwards, Chief Financial and Operating Officer.

Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that the statements made during the call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call.

In addition, certain financial information discussed today will be presented on a non-GAAP basis. These non-GAAP measures exclude certain items related to the acquisition of the company's Greater China license. You may identify these non-GAAP measures by the terms adjusted and non-GAAP. To view the corresponding GAAP measures and related reconciliations, please view the earnings release posted to our website earlier today at investors.michaelkors.com.

I will now turn the call over to Michael Kors' Chairman and Chief Executive Officer, Mr. John Idol.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Thank you, Christina. We are in an exciting and transformative time for our company. We recently announced that Michael Kors Holdings Limited is forming a global fashion luxury group with our acquisition of Jimmy Choo, bringing together 2 iconic companies and creating a platform for future acquisitions. The foundation of our group will be built on fashion authority with craftsmanship and heritage at the core.

Jimmy Choo embodies all of these elements and is an excellent fit for our group. The brand has been a leader in designing glamorous, innovative, expertly crafted footwear and accessories that have resonated with luxury trendsetters for more than 20 years. Under the leadership of Chief Executive Officer Pierre Denis and Creative Director Sandra Choi, the company has demonstrated an impressive track record of consistent sales and earnings growth in addition to strong cash flow generation.

We believe Jimmy Choo can reach $1 billion in revenue over time as we partner with Pierre, Sandra and the rest of the talented management team to build the brand's online presence, expand its retail footprint globally and accelerate growth in the accessories and men's categories. Through the formation of a global fashion luxury group, we expect to enhance long-term value for shareholders by growing the Michael Kors and Jimmy Choo's businesses, while diversifying our product and geographic mix.

Now moving to the quarter's performance. This morning, we reported first quarter fiscal 2018 results, which were ahead of our expectations, largely as a result of better-than-anticipated comparable sales performance in our retail segment in North America and Europe. We have also begun to execute our strategic plan, Runway 2020, to reposition our company for future growth. These efforts are expected to drive improved financial performance as we generate even greater appeal for our fashion luxury assortments, deepen consumers' connection with our brand and further elevate exceptional jet-set experience that we offer online and in our stores. It is still early in the process, but we have certainly begun to lay the foundation for future success. While we recognize that it will take time for our initiatives to bear fruit and meaningfully benefit our financial results, it is encouraging that we have already seen early signs that our efforts are resonating with our consumers.

I will now provide you with an update on the actions we are taking in our focus areas of product innovation, brand engagement and customer experience. Beginning with product innovation. We continue to leverage Michael's fashion luxury leadership and iconic runway heritage to further elevate our accessories product offerings. Importantly, we are also expanding our presence in other key categories, including women's ready-to-wear, footwear, men's sportswear, men's leather goods and ACCESS smartwatches.

In our accessories assortments, the layering and increased fashion innovation that we injected into our offerings elicited excitement among our consumers, with the Mercer collection continuing to be a true favorite. New Mercer styles with feminine novelty detailing, including studs, perforation, crystals and leather inlays, garnered outstanding response. In addition, the hardware branding details we offered on shoulder bags, including the Sloan Editor and Mott collections, were well-received among consumers. Finally, the launch of our iconic Jet Set signature pattern in a smaller size was also a notable success.

We remain pleased with the performance of products that provide opportunities for customization and personalization. Consumers continue to take advantage of the opportunity to personalize their leather goods through our monogramming services, which we offer in our digital flagships and select retail stores. In addition, we continue to see strong response to our customizable product offerings, including our mix-and-match guitar straps as well as our Selma Swap handbag.

Our fall accessories assortments will build on this momentum beginning with the launch of Bancroft from the Michael Kors Collection line. This important new group is a first step in expanding our collection offerings. In addition, we are introducing Sadie into our MICHAEL Michael Kors line. Sadie is a new soft satchel collection with a cool fashion sensibility featuring chain inlay detailing. Both Bancroft and Sadie will be featured in our upcoming fall fashion campaign as part of our efforts to showcase these new collections through a 360-degree marketing effort generating excitement and creating desire for these innovative products.

We also continue to see positive response to our enhanced assortment of women's ready-to-wear and footwear. The increased innovation and elevated positioning of our assortments was well-received, and our expanded dress offerings continued to garner exceptional response from consumers, contributing to growth in our women's ready-to-wear business during the quarter.

Men's sportswear and luxury goods also continued to exhibit positive momentum in the quarter. In sportswear, the consumer responded well to our fashion introductions in woven and knit classifications. Our Greenwich knit polo is now becoming a bestseller at retail. In leather goods, we saw strong response to our expanded offerings, including Bryant and Harrison groups. Backpacks are now the #1-selling silhouette in our collections. In addition, our iconic Jet Set signature collection continues to perform well, and we saw a particularly strong response to our camouflage print as part of our Father's Day gift efforts.

With respect to the watch business. ACCESS smartwatches remain an important and growing category. Consumers continue to respond well to the increased array of styles, plaidings and interchangeable strap options. For the fall season, we are excited to introduce 2 new ACCESS smartwatches styles, Sofie and Grayson. These styles will help fuel our growth of smartwatches, which we anticipate will reach 25% of our overall watch sales by year-end.

We also continued to expand our leadership in fashion wearable technology. During the quarter, we launched My Social, a feature that enables users to link to their Instagram account and set a personal post photo as their watch face. In addition, consumers were highly engaged with our expanded offering of watch dials as we have seen more than 4.5 million watch face changes since April.

Turning to brand engagement. We continue to leverage Michael's iconic image and fashion leadership as we deepen our bond with consumers and enhance excitement of our brand. Michael's strong presence in the fashion industry was showcased at the Met Gala where an ensemble of celebrities were dressed in his designs, including Kerry Washington, Mandy Moore, Elizabeth Banks, Natasha Poly and Yang Mi. The impressive celebrity lineup garnered significant global print and broadcast media coverage as well as 297 million global impressions across various social media channels.

In June, Michael traveled to London to celebrate the launch of Tatler's English Roses. This multimedia exhibition at the Saatchi Gallery showcases the work of the acclaimed photographer, David Burton. The portfolio features the most exciting, interesting and beautiful women in Britain right now, many of whom were photographed wearing looks from the Fall 2017 Michael Kors Collection. The event generated great global press and digital exposure across the globe.

Finally, turning to customer experience. We continue to focus on elevating the brand experience in our digital flagships and brick-and-mortar stores. As part of these efforts, we continue to expand our global presence with the launch of 12 additional European digital flagships in the quarter. We now serve a total of 23 countries globally. We also launched a number features to support our efforts to grow ready-to-wear and footwear penetration in the channel. These efforts include the launch of our online dress shop as well as the rollout of Kors Style, which allows customers to view Michael's head-to-toe styles of the season and buy them in a single transaction.

Now turning to the details of the quarter's financial performance. Total revenue was $952 million, a decrease of 3.6%. Retail comparable sales decreased 5.9%. And earnings per share was $0.80, a 3.6% decline year-over-year.

In the Americas, total revenue declined 8.2% in the quarter. We continue to take steps to increase excitement and desire for our assortments, deepening the innovation and layering our offerings. In addition, we remain focused on taking action to elevate our brand positioning as we reduce promotional activity in our digital flagships, lifestyle stores and wholesale channel. In the Americas, retail net sales were flat, with comparable sales declining in the mid-single digits. E-commerce continue to perform well with a double-digit comparable sales increase in the quarter.

In addition, consumers responded well to the more elevated and layered assortments in our digital flagships and retail stores, which helped to drive mid-single-digit increases in AUR for handbags and ready-to-wear in the quarter. However, this was more than offset by the decline in volume as a result of our strategic decision to reduce brand-wide promotional days in our digital flagship and lifestyle stores, which declined 56% as compared to last year.

In the Americas, wholesale net sales declined 19.5%, largely driven by our decision to strategically reduce sell-in and limit promotional activity in this channel. In the first quarter, there were 42 fewer brand-wide promotional days as compared to last year. We believe this is absolutely the right long-term decision for our brand despite the near-term sales pressure. As I mentioned earlier, there was positive consumer response to our more elevated and layered assortments, which helped to drive AUR increases in women's accessories, footwear and ready-to-wear in the quarter in this channel.

Moving to Europe. Total revenue declined 10.2%. In the retail channel, net sales grew 2.5%, with a comparable sales decline in the low teens on a reported basis and high single digits on a constant-currency basis. Please note, including e-commerce sales and on a constant-currency basis, European comparable sales results would have been modestly positive for the quarter. The sequential improvement in comparable sales performance was partially driven by better tourism trends in the quarter, led by improving performance from Chinese and Russian visitors, although local trends remained soft. European wholesale net sales declined 28.4%, largely as a result of our strategic decision to reduce shipments into the channel as part of our efforts to protect brand health and elevate our positioning.

Turning to Asia. This region continues to perform well with total revenue growth of 60.2% in the quarter. Asia retail net sales grew 104.8%, largely as a result of the shift of China sales to our company-owned retail segment. Comparable sales, which currently exclude China, decreased in the low single digits on a reported basis, but increased in the low single digits on a constant-currency basis. Including China, comparable sales for Asia increased in the low single digits on a reported basis and in the mid-single digits on a constant-currency basis.

Asia wholesale net sales decreased 47%, primarily as a result of the shift of China sales to our company-owned retail segment. We continue to see strong performance in Mainland China and Japan, which was partially offset by weaker performance in South Korea, Hong Kong and Macau, which continue to be impacted by the decline in Mainland Chinese tourists.

Finally, in our licensing business, revenue decreased 5.6% in the quarter. We saw continued strong performance from ACCESS smartwatches, which was offset by declines in fashion watches. We are pleased with the continued strong momentum of ACCESS smartwatches, and we believe they will reach 25% of our total watch sales by year-end.

In fragrance, we added another scent to our Wonderlust collection with the July launch of Wonderlust Essence. The scent is a more intense, richer version of the original. We are also excited to expand the category this fall with the global launch of a major new fragrance, Sexy Ruby. In eyewear, consumers responded well to the Lia open-wire aviators and the Ila, which featured a trendy double-brow feature.

In conclusion, we are pleased that our first quarter results outperformed our expectations, but continue to believe fiscal 2018 will be a transition year for Michael Kors as we execute on our strategic plan, Runway 2020. We are intently focused on raising the level of fashion luxury innovation, elevating our store experience and expanding our global presence. As I stated earlier, it will take some time before our actions translate into improved financial performance. However, we are encouraged by early indicators of success as well as customer feedback and enhanced engagement. Overall, we are confident that we have the right plan in place and are committed to its successful execution.

With that, I will turn the call over to Tom.

Thomas J. Edwards, Michael Kors Holdings Limited - CFO, COO, Executive VP & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, John. I'd like to cover our results for the first quarter of fiscal 2018, provide...


More