Michael Kors’ (KORS) efforts to regain some of its lost luxury luster are starting to pay off, giving shareholders some relief that the handbag maker can get back on track.
The retailer, which for years opened hundreds of stores in the United States, developed a massive presence at discount outlet chains and got into countless department stores, has begun to dial that back, understanding the ubiquity and discounts are the mortal enemy of luxury. Kors, which is in the process of closing up to 125 stores in the next two years, said on Tuesday that comparable sales in the U.S. and Canada, its top markets, fell less than expected. It also raised its full year sales forecast.
Shares were up 15% in premarket trading to $42.84, though they remain well below their all-time highs of around $100 three years ago.
And Kors said it expects its recently announced acquisition of luxury shoe brand Jimmy Choo brand to add about $275 million in sales for the second half of fiscal 2018, which ends next April.
The slowly improving fortunes echo those at arch-rival Coach (COH), which a few years earlier undertook a brand rehabilitation program by closing many stores, cutting many online sales events and focusing more on its high end products even as it expands its non-handbag offerings. And Coach recently closed its deal to buy Kate Spade on its way to becoming a portfolio of brands and become less reliant on its namesake, a strategy Kors is mimicking with its own $1.2 billion deal for Jimmy Choo. Kors has also been focusing on higher end wares in a bid to re-train customers to pay more.
Comparable sales in the quarter ended July 1 fell 5.9%, hardly a triumph, but much less severe than the 8.9% drop Wall Street was expecting according to Consensus Metrix and less dramatic than in previous quarters, suggesting it is finally finding a bottom. Excluding some items, profit per share came to was 80 cents a share last quarter, well above analysts forecast for 62 cents. Sales fell 3.6% to $952.4 million, compared with projections for $919 million. And Michael Kors also raised its forecast for full-year earnings to $3.62 to 3.72 a share. It previously said it expected $3.57 to $3.67.
Yet Kors executives recognized the company has a lot of work ahead of it yet. “We continue to believe that fiscal 2018 will be a transition year for our company, as we focus on laying the foundation for the future,” CEO John Idol said in a statement.
