Michael Kors cuts guidance as weak mall traffic bites

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Weak mall traffic continues to wreak havoc on major US retailers, with Michael Kors the latest to cut its sales and profit forecasts as it struggles to battle dwindling consumer visits to shopping centres.

Shares in the high end clothes and accessories retailer tumbled more than 11 per cent in pre-market trading after it reported a bigger-than-expected drop in a key sales metric for its fiscal third quarter and lowered its full year forward guidance.

Like-for-like sales fell 6.9 per cent during the three months to end of December, a steeper drop than the 5.4 per cent fall that the market was expecting.

“Overall, we were disappointed with our North American and European comparable store sales performance during the quarter,” said chief executive John Idol.

“We believe that headwinds in these markets will continue throughout the Spring season as we face reduced traffic trends in shopping malls, currency fluctuation, uncertainty surrounding certain political changes in European countries and the implementation of our reduced promotional cadence in North America.”

As a result Michael Kors said it now expected same-store sales to drop by “high-single digit” for the fiscal 2017 year, compared to a decline of “mid-single digit” it predicted just three months ago.

Expectations for total revenue have also been lowered to $4.48bn for the year, down from the $4.55bn it had previously predicted.

This along with weaker margins as a result of heavy discounting means adjusted diluted earnings per share are now expected to be between $4.15 to $4.19 on a non-GAAP basis,
and between $4.09 to $4.13 on a GAAP basis, including the one-time costs.

That compares to the adjusted profit of $4.37 to $4.43 per share and headline earnings of $4.32 to $4.38 Michael Kors projected back in November.

Michael Kors is being hit particularly hard by the woes that have convulsed US department store and mall operators. While its retail business, where it sells its goods through its own store, notched up a 9.2 per cent increase in sales during the December quarter, its wholesale business, where it sells to department stores, suffered a 17.8 per cent drop in sales during the period.

Total revenue decreased 2.4 per cent to $3.43bn for the quarter, and net income fell to $271.3m.

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