Michael Kors sinks on wave of target cuts
Luxury handbag maker Michael Kors was felled on Tuesday as at least three brokerages cut price targets on the company, citing a litany of issues including rising promotions and elevated inventory levels.
Analysts with Barclays, Sterne Agee and Citi cut price targets, sending the shares 7 per cent lower to $79.44.
Sterne Agee analyst Ike Boruchow noted that Michael Kors had increased discounts over the summer months, a tactic many mall-based retailers have adopted in an effort to boost sales as consumer spending falls short of Wall Street expectations.
“Elevated inventory levels, broader discounting and investment needs may all combine to pressure margins in the near future, and as a result, we believe it will be difficult for the stock to outperform materially despite solid top-line trends,” Mr Boruchow said.
Barclays analyst Joan Payson added that there was a noticeable “uptick in summer promotional activity compared to that in prior years”, as the company discounted between 30 and 50 per cent of merchandise in stores.
The company has seen a sharp reversal in sentiment over the past few months as investor and analyst concerns mount that rapid growth recorded since shares were listed in 2011 cannot be sustained.
Michael Kors saw a fourfold jump in its market capitalisation between its debut on the New York Stock Exchange and the start of 2014, touching $20.4bn this past February.
The declines on Tuesday took Michael Kors’s descent from that peak to more than 20 per cent and reduced its market cap to $16.5bn.
Rivals including Burberry and Ralph Lauren have had a difficult start to the year as well, falling 7 and 10 per cent, respectively.
Mr Boruchow noted the handbag maker’s same-store sales “remain among the best in retail” and said Michael Kors would benefit from an expansion in Europe despite a maturing US business.
JPMorgan led the benchmark S&P 500 higher after the US bank said quarterly profits topped Wall Street expectations.
Profits at the bank fell to $6bn, or $1.46 a share, from $6.5bn, or $1.60 a share, in the same quarter a year earlier. The bank also became the latest to suffer a slide in revenues, which fell 2 per cent to $25.3bn.
While JPMorgan’s fixed-income division was, once again, the chief drag in the quarter, the decline in trading revenues was not as steep as expected.
Fixed-income revenues fell 15 per cent to $3.5bn from the same quarter in 2013. Analysts had forecast a decline of 20 per cent.
Wall Street rival Goldman Sachs also surpassed low expectations, reporting a surprise rise in second-quarter profits.
Goldman earned $2bn, or $4.10 a share, in the quarter to June 30 compared with $1.9bn, or $3.70 a share, in the same quarter a year earlier. Revenues climbed to $9.1bn from $8.6bn.
The biggest positive surprise came from Goldman’s bond and currency business, historically a key profit engine for the bank.
Although revenues fell 10 per cent to $2.2bn, that was less than half the 23 per cent decline that Wall Street analysts had forecast.
Shares of JPMorgan climbed 4 per cent to $58.27 while Goldman advanced 1 per cent to $169.17. Morgan Stanley rose 1 per cent to $32.00 while Bank of America increased 2 per cent to $15.81.
Campbell Soup and Kellogg were under pressure on Tuesday after Goldman Sachs lowered its rating on each to “sell” from “neutral”.
Analysts with Goldman warned that eroding demand and higher tomato prices would cut into Campbell’s profits, and said they expected Kellogg to cut guidance as sales remained weak.
Shares of Campbell Soup declined 3 per cent to $44.14 while Kellogg fell 1 per cent to $65.56.
Overall, markets trended lower following a US Federal Reserve report that said valuations for smaller social media and biotechnology companies appeared “substantially stretched”, despite better than expected revisions to monthly retail sales data.
The S&P 500 fell 0.2 per cent to 1,973.28 while the Dow Jones Industrial Average inched 5.3 points lower to 17,060.68. The technology-heavy Nasdaq Composite declined 0.5 per cent to 4,416.39.