Shares in Michael Kors slumped 14 per cent on Wednesday as the US accessories designer said its earnings dropped by a third, six weeks after it disclosed plans to buy luxury European fashion company Versace.
Investors knocked $1.2bn off the New York-listed company’s market capitalisation and sent the shares to a new low for the year as analysts raised concerns about falling like-for-like sales and a weaker than forecast profits target.
Sales generated by Jimmy Choo, the London shoemaker bought for $1.35bn last year, helped total revenue rise 9.3 per cent from a year ago to $1.25bn in the three months to the end of September, the second quarter of its financial year.
On a like-for-like basis, however, sales at Michael Kors’ own-brand stores — based in locations including Beverly Hills, Manhattan’s Soho and Regent Street in London — declined 1.3 per cent on a constant currency basis.
The company said in September it was buying family-owned Versace of Milan for about $2.1bn including debt, challenging European brands including LVMH, Kering and Richemont.
“As much as they want to focus on becoming a conglomerate business, you have to do that from a position of strength — you have less credibility in doing that if you don’t stabilise the core brand,” said Dylan Carden, analyst at William Blair. “There are some real structural issues with the brand.”
Michael Kors, which will be renamed Capri Holdings when the Versace deal is completed, was once an investor favourite thanks to soaring sales of its $300 handbags. However, it ran into difficulties after its aggressive expansion and hefty discounting.
The company has been seeking to restore its upscale image and better control the pricing of its products. John Idol, chief executive, said: “We continue to make progress on our strategic initiatives and are excited about what the future for Capri Holdings will be.”
Revenue growth in Michael Kors’ retail and wholesale operations in the Americas and Asia was offset by declines in Europe.
Across the group, net income dropped a third from a year ago to $137.1m, including a $33m hit from foreign exchange movements. That equated to diluted earnings per share of 91 cents, down from $1.32 last time.
The company raised its target for full-year adjusted earnings per share from a range of $4.90-$5.00 to $4.95-$5.05. However, Jay Sole, analyst at UBS, wrote in a note: “We think the market will view this guidance as conservative.”
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