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Citi Says It May Be Tougher Than Michael Kors Expects To Improve North American Comps

While reporting disappointing top-line results, Michael Kors Holdings Ltd KORS projected meaningful sales growth and margin expansion in 2H. The guidance appears optimistic, with an improvement in NA comps proving tougher than expected to achieve, Citi’s Paul Lejuez said in a report. He maintained a Neutral rating on the company, with a price target of $51.

Projections Seem Aggressive

Michael Kors is depending heavily on various initiatives, including the launch of wearable technology, significant product newness and fragrance launch, to generate significant growth in sales and improvement in margins in the back half of the year.

“This improvement will be dependent on the retail channel as the large declines in wholesale seem likely to materialize as the year progresses,” analyst Lejuez noted.

Management may be assuming a sequential improvement in North America comps, while continuing to expect negative comps in Europe. Lejuez commented, however, that it could be more difficult than expected for Michael Kors to achieve an improvement in comps in North America.

Although retail gross margin contracted 480bps in 1Q, management has projected significant expansion in retail gross margin. The analyst added that gross margin may fall short of management’s plan.

The EPS estimate for FY17 has been reduced from $4.40 to $4.30 to reflect lower sales and margin assumptions.

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Aug 2016Goldman SachsMaintainsNeutral
Apr 2016Piper JaffrayUpgradesNeutralOverweight
Mar 2016Jyske BankInitiates Coverage onBuy

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