Michael Kors Holdings Limited Announces Third Quarter Fiscal 2016 Results

February 2, 2016

Third Quarter Total Revenue Increased 6.3% (Increased 9.9% on a Constant Currency Basis)

Third Quarter Reported Diluted EPS was $1.59 ($1.65 on a Constant Currency Basis)

LONDON--(BUSINESS WIRE)-- Michael Kors Holdings Limited (NYSE:KORS) (the “Company”), a global luxury lifestyle brand, today announced its financial results for the fiscal 2016 third quarter ended December 26, 2015.

For the third quarter ended December 26, 2015:

  • Total revenue increased 6.3% to $1.40 billion from $1.31 billion in the third quarter of fiscal 2015. On a constant currency basis, total revenue increased 9.9%.
  • Retail net sales increased 11.1% to $766.2 million driven primarily by e-commerce sales from the Company's digital flagships and 114 net new store openings since the end of the third quarter of fiscal 2015. Comparable store sales decreased 0.9%. On a constant currency basis, retail net sales grew 15.7%, and comparable store sales increased 2.0%. Wholesale net sales increased 0.3% to $575.5 million and on a constant currency basis, wholesale net sales grew 3.0%. Licensing revenue increased 8.4% to $55.8 million.
  • Total revenue in the Americas increased 0.4% to $1.06 billion on a reported basis and increased 1.4% on a constant currency basis. European revenue grew 14.3% to $276.0 million on a reported basis, and grew 29.1% on a constant currency basis. Revenue in Japan increased 59.1% to $25.5 million on a reported basis, and increased 68.0% on a constant currency basis.
  • Gross profit increased 4.0% to $832.0 million, and as a percentage of total revenue was 59.5%. Foreign currency translation and transaction negatively impacted gross profit margin by approximately 95 basis points. This compares to gross margin of 60.9% in the third quarter of fiscal 2015.
  • Income from operations was $409.3 million, or 29.3% as a percentage of total revenue. This compares to $418.5 million, or 31.8% as a percentage of total revenue, for the third quarter of fiscal 2015.
  • Net income was $294.6 million, or $1.59 per diluted share, based on a 28.0% tax rate and 184.9 million weighted average diluted shares outstanding, which included an unfavorable impact related to foreign currency exchange rates of approximately $0.06 per share. Net income for the third quarter of fiscal 2015 was $303.7 million, or $1.48 per diluted share, based on a 27.2% tax rate and 205.6 million weighted average diluted shares outstanding.
  • At December 26, 2015, the Company operated 623 retail stores, including concessions, compared to 509 retail stores, including concessions, at the end of the same prior-year period. The Company had 234 additional retail stores, including concessions, operated through licensing partners. Including licensed locations, there were 857 Michael Kors stores worldwide at the end of the third quarter of fiscal 2016.

John D. Idol, the Company’s Chairman and Chief Executive Officer, said, “We are pleased with our third quarter results, as we delivered revenue, comparable store sales and earnings growth ahead of our expectations. Our performance was driven primarily by strong consumer response to our luxury fashion product offering, particularly in our accessories and footwear categories, the continued momentum in our digital flagship business and outstanding growth in our international markets. As we look ahead, we are excited about our upcoming Spring collections that embody design innovation and underscore Michael Kors fashion leadership. In addition, we remain focused on further developing our digital flagship strategy as we offer our customers a seamless omni-channel experience, the build-out of our men’s business, and leveraging our strong brand awareness to expand our business globally. We believe that the continued execution of these strategic initiatives positions us well to deliver long term growth.”

For the first nine months ended December 26, 2015:

  • Total revenue increased 6.8% to $3.51 billion from $3.29 billion in the same period of fiscal 2015. On a constant currency basis, total revenue increased 11.6%.
  • Retail net sales increased 9.4% to $1.82 billion. Comparable store sales decreased 5.6%. On a constant currency basis, retail net sales grew 15.5% and comparable store sales declined 1.6%. Wholesale net sales increased 3.9% to $1.55 billion and on a constant currency basis, wholesale net sales grew 7.9%. Licensing revenue increased 5.5% to $137.7 million.
  • Gross profit for the first nine months increased 4.1% to $2.10 billion, and as a percentage of total revenue, was 59.8%. This compares to gross margin of 61.3% in the same period of fiscal 2015.
  • Income from operations for the first nine months was $931.0 million and as a percentage of total revenue was 26.5%. For the same period of fiscal 2015, income from operations was $1,000.8 million, or 30.4% as a percentage of total revenue.
  • Net income for the first nine months was $662.1 million, or $3.45 per diluted share, based on 192.1 million weighted average diluted shares outstanding, which included an unfavorable impact related to foreign currency exchange rates of approximately $0.18 per share. Net income for the same period of fiscal 2015 was $698.4 million, or $3.38 per diluted share, based on 206.8 million weighted average diluted shares outstanding.

Share Repurchase Program

During the third quarter, the Company repurchased 4,682,121 of the Company's ordinary shares for approximately $200.0 million in open market transactions. As of December 26, 2015, the remaining availability under the Company’s share repurchase program was $558.1 million. Share repurchases may be made in open market or privately negotiated transactions, 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.

Outlook

For the fourth quarter of fiscal 2016, the Company expects total revenue to be in the range of $1.13 billion to $1.15 billion, which includes approximately $36 million of additional sales due to the 53rd week. On a constant currency basis, total revenue is expected to increase in the high-single digit range assuming an impact of approximately $20 million from the change in foreign currency rates. The Company expects comparable store sales to be flat on a reported basis and to increase in the low single digits on a constant currency basis. Operating expense as a percentage of total revenue is expected to increase 190 to 220 basis points, primarily due to global investments in digital flagships, corporate talent, new stores, shop-in-shops, infrastructure and distribution. Diluted earnings per share are expected to be in the range of $0.93 to $0.97 for the fourth quarter of fiscal 2016. This assumes 182.5 million weighted average diluted shares outstanding and a tax rate of approximately 27.5%. The Company expects foreign currency to impact net income by approximately $3 million and EPS by approximately $0.02.

For fiscal 2016, the Company expects total revenue to be approximately $4.65 billion. On a constant currency basis, total revenue is expected to increase in the low-double digit range assuming an impact of approximately $180 million from the change in foreign currency rates. The Company expects a mid-single digit comparable store sales decrease on a reported basis and a low-single digit decrease on a constant currency basis. Operating expense as a percentage of total revenue is expected to increase approximately 230 basis points, due to the above mentioned investments. Diluted earnings per share are expected to be in the range of $4.38 to $4.42 for fiscal 2016. This assumes 190 million weighted average diluted shares outstanding and a tax rate of approximately 28.5%. The Company expects foreign currency to impact net income by approximately $38 million and EPS by approximately $0.20.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, February 2, 2016 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 9289594. 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 Collection 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 28, 2015 (File No. 001-35368), filed on May 27, 2015 with the U.S. Securities and Exchange Commission.

Use of Non-GAAP Constant Currency Financial Measures

Constant currency effects are non-GAAP financial measures, which are provided to supplement our reported operating results to facilitate comparisons of our operating results and trends in our business, excluding the effects of foreign currency rate fluctuations. Because we are a global Company, foreign currency exchange rates may have a significant effect on our reported results. We calculate constant currency measures and the related foreign currency impacts by translating the current-year’s reported amounts into comparable amounts using prior year’s foreign exchange rates for each currency. All constant currency performance measures discussed below should be considered a supplement to and not in lieu of our operating performance measures calculated in accordance with accounting principles generally accepted in the United States (“U.S. GAAP.”)

 

SCHEDULE 1

 

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

 
      Three Months Ended     Nine Months Ended
December 26,
2015
    December 27,
2014
December 26,
2015
    December 27,
2014
Net sales $ 1,341,678 $ 1,263,226 $ 3,375,766 $ 3,159,932
Licensing revenue 55,801   51,500   137,669   130,553  
Total revenue 1,397,479 1,314,726 3,513,435 3,290,485
Cost of goods sold 565,509   514,583   1,413,401   1,273,682  
Gross profit 831,970 800,143 2,100,034 2,016,803
Total operating expenses 422,662   381,666   1,169,017   1,015,997  
Income from operations 409,308 418,477 931,017 1,000,806
Other (income) expense, net (54 ) 188 840 (1,161 )
Interest expense, net 632 116 1,116 147
Foreign currency losses 136   1,163   2,255   4,711  
Income before provision for income taxes 408,594 417,010 926,806 997,109
Provision for income taxes 114,398   113,335   265,437   298,728  
Net income $ 294,196 $ 303,675 $ 661,369 $ 698,381
Less: Net loss attributable to noncontrolling interest (390 )   (708 )  
Net income attributable to MKHL $ 294,586   $ 303,675   $ 662,077   $ 698,381  
Weighted average ordinary shares outstanding:
Basic 182,176,452 202,668,541 189,336,957 203,627,688
Diluted 184,851,616 205,647,816 192,143,422 206,752,103
Net income per ordinary share:
Basic $ 1.62 $ 1.50 $ 3.50 $ 3.43
Diluted $ 1.59 $ 1.48 $ 3.45 $ 3.38
 
 

SCHEDULE 2

 

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

 
 

December 26,
2015

 

March 28,
2015

 

December 27,
2014

Assets
Current assets
Cash and cash equivalents $ 696,823 $ 978,922 $ 1,002,830
Receivables, net 301,632 363,419 311,086
Inventories 588,295 519,908 537,501
Prepaid expenses and other current assets 74,921   127,443   110,347  
Total current assets 1,661,671 1,989,692 1,961,764

Property and equipment, net

739,863 562,934 532,304
Intangible assets, net 66,363 61,541 63,644
Goodwill 23,215 14,005 14,005
Deferred tax assets 24,019 22,958 26,730
Other assets 19,086   33,498   33,576  
Total assets $ 2,534,217   $ 2,684,628   $ 2,632,023  
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 190,740 $ 142,818 $ 175,197
Accrued payroll and payroll related expenses 49,236 62,869 50,642
Accrued income taxes 33,306 25,507 29,757
Accrued expenses and other current liabilities 149,788   95,146   105,726  
Total current liabilities 423,070 326,340 361,322
Deferred rent 104,407 88,320 94,926
Deferred tax liabilities 4,269 6,966 1,580
Long-term debt 3,977
Other long-term liabilities 18,571   22,037   22,710  
Total liabilities 554,294 443,663 480,538
Commitments and contingencies
Shareholders’ equity

Ordinary shares, no par value; 650,000,000 shares authorized; 207,358,367
shares issued and 179,406,768 outstanding at December 26, 2015;
206,486,699 shares issued and 199,656,833 outstanding at March 28,
2015, and 201,029,249 shares issued and 195,889,884 outstanding at
December 27, 2014

Treasury shares, at cost (27,951,599 shares at December 26, 2015;
6,829,866 shares at March 28, 2015; and 5,139,365 shares at December
27, 2014)

(1,450,114 ) (497,724 ) (405,702 )
Additional paid-in capital 692,758 636,732 610,938
Accumulated other comprehensive loss (97,915 ) (66,804 ) (39,870 )
Retained earnings 2,830,810   2,168,761   1,986,119  
Total shareholders’ equity of MKHL 1,975,539 2,240,965 2,151,485
Noncontrolling interest 4,384      
Total shareholders’ equity 1,979,923   2,240,965   2,151,485  
Total liabilities and shareholders’ equity $ 2,534,217   $ 2,684,628   $ 2,632,023  
 
 

SCHEDULE 3

 

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED SEGMENT DATA
($ in thousands)
(Unaudited)

 
  Three Months Ended   Nine Months Ended
December 26,
2015
  December 27,
2014
December 26,
2015
  December 27,
2014
Revenue by Segment and Region:
Retail net sales:   The Americas $ 589,551 $ 551,840 $ 1,371,114 $ 1,296,398
Europe 151,173 121,518 383,741 321,558
Japan 25,501   16,030   67,485   47,253  
Total Retail Net Sales 766,225 689,388 1,822,340 1,665,209
Wholesale net sales: The Americas 440,051 476,239 1,175,316 1,203,960
Europe 101,432 97,599 295,862 290,763
Asia 33,970     82,248    
Total Wholesale Net Sales 575,453 573,838 1,553,426 1,494,723
Licensing revenue: The Americas 32,414 29,201 81,096 78,037
Europe 23,387   22,299   56,573   52,516  
Total Licensing Revenue 55,801 51,500 137,669 130,553
Total Revenue $ 1,397,479   $ 1,314,726   $ 3,513,435   $ 3,290,485  
 
Income from Operations:
Retail $ 212,856 $ 214,928 $ 433,689 $ 484,951
Wholesale 160,269 170,487 423,459 444,811
Licensing 36,183   33,062   73,869   71,044  
Total Income from Operations $ 409,308   $ 418,477   $ 931,017   $ 1,000,806  
 
Operating Margin:
Retail 27.8 % 31.2 % 23.8 % 29.1 %
Wholesale 27.9 % 29.7 % 27.3 % 29.8 %
Licensing 64.8 % 64.2 % 53.7 % 54.4 %
Total Operating Margin 29.3 % 31.8 % 26.5 % 30.4 %
 
December 26, 2015
Store Count and Square Footage by Region: Store Count Square Footage
The Americas 392 1,179,818
Europe 171 448,725
Japan 60   88,625  
Total 623   1,717,168  
 
 

SCHEDULE 4

 

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSTANT CURRENCY DATA
(In thousands)
(Unaudited)

 
  Three Months Ended   % Change

December 26,
2015

 

December 27,
2014

As
Reported

 

Constant
Currency

Retail net sales $ 766,225 $ 689,388 11.1 % 15.7 %
Wholesale net sales 575,453 573,838 0.3 % 3.0 %
Licensing revenue 55,801   51,500   8.4 % 8.4 %
Total revenue $ 1,397,479   $ 1,314,726   6.3 % 9.9 %
 

Nine Months Ended

% Change

December 26,
2015

December 27,
2014

As
Reported

Constant
Currency

Retail net sales $ 1,822,340 $ 1,665,209 9.4 % 15.5 %
Wholesale net sales 1,553,426 1,494,723 3.9 % 7.9 %
Licensing revenue 137,669   130,553   5.5 % 5.5 %
Total revenue $ 3,513,435   $ 3,290,485   6.8 % 11.6 %
 

Source: Michael Kors Holdings Limited

Investor Relations:

Michael Kors Holdings Limited

Krystyna Lack, 201-691-6133

VP, Treasurer

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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