Michael Kors Holdings Limited Announces Second Quarter Fiscal 2015 Results

November 4, 2014

Second Quarter Total Revenue Increased 42.7%; Comparable Store Sales Increased 16.4%

Second Quarter Reported Diluted EPS Increased 40.8% to $1.00

Company Announces $1 Billion Share Repurchase Program

LONDON--(BUSINESS WIRE)--Nov. 4, 2014-- Michael Kors Holdings Limited (NYSE:KORS) (the “Company”), a global luxury lifestyle brand, today announced its financial results for the second quarter ended September 27, 2014.

For the second quarter ended September 27, 2014:

  • Total revenue increased 42.7% to $1.1 billion from $740.3 million in the second quarter of fiscal 2014.
  • Retail net sales increased 39.4% to $495.6 million driven by 121 net new store openings since the end of the second quarter of fiscal 2014 and a 16.4% increase in comparable store sales. Wholesale net sales increased 46.1% to $514.1 million and licensing revenue increased 42.8% to $46.9 million.
  • Revenue in North America increased 29.8% to $802.2 million, with a 10.8% increase in comparable store sales. European revenue grew 108.6% to $237.9 million, with comparable store sales increasing 41.1%. Revenue in Japan increased 106.3% to $16.5 million, with comparable store sales growth of 52.9%.
  • Gross profit increased 43.4% to $645.0 million, and as a percentage of total revenue increased to 61.0% compared to 60.8% in the second quarter of fiscal 2014.
  • Income from operations was $305.6 million, or 28.9% as a percentage of total revenue, as compared to $221.5 million, or 29.9% as a percentage of total revenue, for the second quarter of fiscal 2014.
  • Net income was $207.0 million, or $1.00 per diluted share, based on 207.4 million weighted average diluted shares outstanding. Net income for the second quarter of fiscal 2014 was $145.8 million, or $0.71 per diluted share, based on 205.2 million weighted average diluted shares outstanding.
  • At September 27, 2014, the Company operated 473 retail stores, including concessions, compared to 352 retail stores, including concessions, at the end of the same prior-year period. The Company had 176 additional retail stores, including concessions, operated through licensing partners. Including licensed locations, there were 649 Michael Kors stores worldwide at the end of the second quarter of fiscal 2015.

John D. Idol , the Company’s Chairman and Chief Executive Officer, said, “Our strong second quarter results reflect our fashion leadership, aspirational product offering and jet-set luxury image that continue to resonate with customers globally. Once again, we delivered exceptional performance with both revenue and earnings per share growth in excess of 40%. This ongoing momentum reflects strength across our operating segments and geographies as we continue to expand our presence globally.”

For the first six months ended September 27, 2014:

  • Total revenue for the first six months increased 43.1% to $2.0 billion from $1.4 billion in the same period of fiscal 2014.
  • Retail net sales increased 43.2% to $975.8 million. Comparable store sales increased 20.2%. Wholesale net sales increased 43.3% to $920.9 million and licensing revenue increased 37.6% to $79.1 million.
  • Gross profit for the first six months increased 43.6% to $1.2 billion, and as a percentage of total revenue increased to 61.6% as compared to 61.3% in the same period of fiscal 2014.
  • Income from operations for the first six months was $582.3 million and as a percentage of total revenue was 29.5%. For the same period of fiscal 2014, income from operations was $419.0 million, or 30.3% as a percentage of total revenue.
  • Net income for the first six months was $394.7 million, or $1.90 per diluted share, based on 207.3 million weighted average diluted shares outstanding. Net income for the same period of fiscal 2014 was $270.8 million, or $1.32 per diluted share, based on 205.5 million weighted average diluted shares outstanding.

South Korea Licensed Business

The Company also announced that it will take direct control of the Michael Kors business in South Korea from its current partner, Simone FC, by the early part of calendar 2016. The current distribution in this region includes 37 locations. The Company will focus on building the infrastructure and developing its expansion strategy for South Korea in order to position this business for long term growth.

Share Repurchase Program

The Company's Board of Directors has authorized a $1 billion share repurchase program. Share repurchases may be made in open market or privately negotiated transactions over a two year period, subject to market conditions, applicable legal requirements, trading restrictions under the Company's insider trading policy, and other relevant factors. The program may be suspended or discontinued at any time.

Joseph B. Parsons , Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer, stated, “We are pleased to initiate a share repurchase program, which reflects the Board and management’s confidence in our ability to achieve our long term growth objectives and generate strong free cash flow. This repurchase program underscores our commitment to returning value to shareholders, while maintaining the financial flexibility to strategically invest in our business.”

Outlook

For the third quarter of fiscal 2015, the Company expects total revenue to be in the range of $1.27 billion to $1.30 billion. This assumes a low double digit comparable store sales increase. Diluted earnings per share are expected to be in the range of $1.31 to $1.34 for the third quarter of fiscal 2015. This assumes 208.3 million weighted average diluted shares outstanding and a tax rate of approximately 32.5%.

For fiscal 2015, the Company now expects total revenue to be in the range of $4.3 billion to $4.4 billion. This assumes a comparable store sales increase in the mid teens. Diluted earnings per share are now expected to be in the range of $4.13 to $4.18 for fiscal 2015. This assumes 208.0 million weighted average diluted shares outstanding and a tax rate of approximately 32.2%.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, November 4, 2014 at 8:00 a.m. ET. A replay of the call will be available today at 11:00 a.m. ET; to access the replay, dial 1-877-870-5176 for domestic callers or dial 1-858 384-5517 for international callers and enter access code 6121193. The conference call will also be webcast live in the investor relations section of www.michaelkors.com. The webcast will be accessible on the website for approximately 90 days after the call.

About Michael Kors

Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready to wear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors and MICHAEL Michael Kors labels, including accessories, footwear, watches, jewelry, men’s and women’s ready to wear, and a full line of fragrance products. Michael Kors stores are operated, either directly or through licensing partners, in some of the most prestigious cities in the world, including New York, Beverly Hills, Chicago, London, Milan, Paris, Munich, Istanbul, Dubai, Seoul, Tokyo and Hong Kong.

Forward Looking Statements

This press release contains forward-looking statements. You should not place undue reliance on such statements because they are subject to numerous uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Forward-looking statements include information concerning the Company’s possible or assumed future results of operations, including descriptions of its business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. The forward-looking statements contained in this press release are based on assumptions that the Company has made in light of management’s experience in the industry as well as its perceptions of historical trends, current conditions, expected future developments and other factors that it believes are appropriate under the circumstances. You should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect its actual financial results or results of operations and could cause actual results to differ materially from those in these forward-looking statements. These factors are more fully discussed in the "Risk Factors" section and elsewhere in the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2014 (File No. 001-35368), filed on May 28, 2014 with the U.S. Securities and Exchange Commission.

SCHEDULE 1

 

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share data)

(Unaudited)

 
Three Months Ended Six Months Ended
September 27,   September 28, September 27,   September 28,
2014 2013 2014 2013
 
Net sales $ 1,009,669 $ 707,444 $ 1,896,706 $ 1,323,692
Licensing revenue   46,936     32,859     79,053     57,470  
Total revenue 1,056,605 740,303 1,975,759 1,381,162
Cost of goods sold   411,578     290,428     759,099     534,016  
Gross profit 645,027 449,875 1,216,660 847,146
Total operating expenses   339,469     228,415     634,331     428,124  
Income from operations 305,558 221,460 582,329 419,022
Other income (2,051 ) - (1,546 ) -
Interest expense, net 72 130 31 300
Foreign currency loss   3,440     18     3,745     276  
Income before provision for income taxes 304,097 221,312 580,099 418,446
Provision for income taxes   97,107     75,504     185,393     147,642  
Net income $ 206,990   $ 145,808   $ 394,706   $ 270,804  
 
Weighted average ordinary shares outstanding:
Basic 204,464,952 202,560,870 204,107,262 202,686,313
Diluted 207,432,250 205,154,692 207,304,247 205,547,191
 
Net income per ordinary share:
Basic $ 1.01 $ 0.72 $ 1.93 $ 1.34
Diluted $ 1.00 $ 0.71 $ 1.90 $ 1.32
 
Statements of Comprehensive Income:
Net income $ 206,990 $ 145,808 $ 394,706 $ 270,804
Foreign currency translation adjustments (27,671 ) 6,331 (24,604 ) 4,973
Net realized and unrealized gains (losses) on derivatives   9,094     (2,592 )   10,558     (3,213 )
Comprehensive income $ 188,413   $ 149,547   $ 380,660   $ 272,564  

SCHEDULE 2

   

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
September 27, March 29, September 28,
Assets 2014 2014 2013
Current assets
Cash and cash equivalents $ 1,012,393 $ 955,145 $ 618,841
Receivables, net 346,822 314,055 228,850
Inventories 619,296 426,938 404,194
Deferred tax assets 29,204 30,539 9,381
Prepaid expenses and other current assets   125,658     50,492     84,675  
Total current assets 2,133,373 1,777,169 1,345,941
Property and equipment, net 453,836 350,678 284,580
Intangible assets, net 53,278 48,034 36,316
Goodwill 14,005 14,005 14,005
Deferred tax assets 6,423 3,662 7,777
Other assets   28,515     23,425     19,155  
Total assets $ 2,689,430   $ 2,216,973   $ 1,707,774  
 
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 179,079 $ 131,953 119,420
Accrued payroll and payroll related expenses 46,733 54,703 36,746
Accrued income taxes 19,361 47,385 7,588
Accrued expenses and other current liabilities   80,692     74,329     54,444  
Total current liabilities 325,865 308,370 218,198
Deferred rent 93,434 76,785 69,976
Deferred tax liabilities 3,905 5,887 19,010
Other long-term liabilities   21,097     19,800     14,293  
Total liabilities 444,301 410,842 321,477
Commitments and contingencies
Shareholders' equity

Ordinary shares, no par value; 650,000,000 shares authorized, and 205,797,551 shares issued and outstanding at September 27, 2014, 204,291,345 shares issued and outstanding at March 29, 2014, and 203,846,931 shares issued and outstanding at September 28, 2013

- - -
Treasury shares, at cost (40,787 shares at September 27, 2014, and 29,765 at March 29, 2014) (3,484 ) (2,447 ) -
Additional paid-in capital 586,588 527,213 490,941
Accumulated other comprehensive loss (20,419 ) (6,373 ) (1,701 )
Retained earnings   1,682,444     1,287,738     897,057  
Total shareholders' equity   2,245,129     1,806,131     1,386,297  
Total liabilities and shareholders' equity $ 2,689,430   $ 2,216,973   $ 1,707,774  
SCHEDULE 3      
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED SEGMENT DATA

(Dollars In thousands)

(Unaudited)
 
Three Months Ended Six Months Ended
September 27, September 28, September 27, September 28,
2014 2013 2014 2013
Revenue by Segment and Region:
Retail net sales: North America $ 370,999 $ 294,368 $ 744,558 $ 569,738
Europe 108,125 53,228 200,040 95,704
Japan   16,455     7,977     31,223     15,803  
Total Retail Net Sales 495,579 355,573 975,821 681,245
 
Wholesale net sales: North America 400,678 291,050 727,721 542,623
Europe   113,412     60,821     193,164     99,824  
Total Wholesale Net Sales 514,090 351,871 920,885 642,447
 
Licensing revenue: North America 30,549 32,859 48,836 57,470
Europe   16,387     -     30,217     -  
Total Licensing Revenue 46,936 32,859 79,053 57,470
       
Total Revenue $ 1,056,605   $ 740,303   $ 1,975,759   $ 1,381,162  
 
Income from Operations:
Retail $ 127,334 $ 103,133 $ 270,023 $ 206,247
Wholesale 156,672 98,531 274,324 179,577
Licensing   21,552     19,796     37,982     33,198  
Total Income from Operations $ 305,558   $ 221,460   $ 582,329   $ 419,022  
 
Operating Margin:
Retail 25.7 % 29.0 % 27.7 % 30.3 %
Wholesale 30.5 % 28.0 % 29.8 % 28.0 %
Licensing 45.9 % 60.2 % 48.0 % 57.8 %
Total Operating Margin 28.9 % 29.9 % 29.5 % 30.3 %
 
As of
September 27, 2014 September 28, 2013
Store Count and Square Footage by Region: Store Count Square Footage Store Count Square Footage
North America 320 872,282 264 670,444
Europe 111 251,884 57 115,118
Japan   42     51,980     31     38,865  
Total   473     1,176,146     352     824,427  

Source: Michael Kors Holdings Limited

Investor Relations:
Michael Kors Holdings Limited
Krystyna Lack - VP, Treasurer, 201-691-6133
InvestorRelations@MichaelKors.com
or
ICR, Inc.
Jean Fontana, 203-682-1214
jean.fontana@icrinc.com
or
Media:
ICR, Inc.
Alecia Pulman, 646-277-1231
KorsPR@icrinc.com

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