Michael Kors to Expand in Menswear
Accessories Maker's Profit Leaps 77%; Full-Year Forecast Is Raised
Michael Kors Holdings Ltd. KORS +17.96% reported a big jump in its third quarter profit and said it plans to expand men's clothing and accessories into a $1 billion business, a move that could further dent rival Coach Inc. COH -1.84%
The handbag maker and retailer said net income increased 77% in its fiscal third quarter, running counter to a number of gloomy numbers from lower-end retailers after a competitive holiday discounting season. The company also raised its earnings and revenue guidance for the year, a sign that its popular styles like the Selma handbag and oversize watches at affordable prices are continuing to resonate with consumers.
Chief Executive John Idol said over the next 24 months the company will make "a significant push in the men's business."
As part of that effort, Michael Kors will announce a new president to lead the men's business within the next 30 days. In the fall, the company will launch a new men's fragrance accompanied by "significant" advertising and make a big "push" on watches.
Its shares surged 18% in midday trading on the better-than-expected results.
In pursuing men, Michael Kors is plowing into an increasingly crowded field. Companies ranging from LVMH Moët Hennessy Louis Vuitton SA MC.FR +0.42% to Coach. have courted men as they try to offset a slowdown in more established women's categories.
LVMH is spending roughly $135 million to develop Berluti, a small maker of pricey men's shoes, into an apparel and accessories house. Coach says its men's business is on track to have $700 million in sales this year, up from $100 million in 2010.
Men's is still a small part of Michael Kors's overall business, representing slightly less than 5% of sales, or about $150 million, according to Paul Lejuez, an analyst for Wells Fargo Securities.
Mr. Lejuez said men's has been a rare bright spot for Coach, helping to offset lost share of women's handbags to Michael Kors, an advantage that might be eroded as Kors beefs up its men's offerings.
"We've seen Kors take share from Coach in most other categories," Mr. Lejuez said. "To the extent Kors pays more attention to men's, it would probably be a negative for Coach."
Coach spokeswoman Andrea Resnick said the men's premium bag and accessory market is large and growing and that Coach has the benefit of a 70-plus year heritage to draw from.
For now, the bulk of Michael Kors's business still comes from selling handbags, watches and accessories to women. Demand for these items has so far shown few signs of abating.
For the quarter ended Dec. 28, Michael Kors said net income climbed to $229.6 million from $130 million a year earlier. Revenue rose 59% to $1.01 billion, while sales excluding newly opened or closed stores jumped 28% compared with the same period a year ago.
Retail sales increased 51% to $503.4 million, fueled by rapid store openings. As of Dec. 28, 2013, the company operated 395 retail stores, including concessions, compared with 297 for the same period a year ago. Wholesale revenue rose 68% to $461.4 million.
North American sales excluding newly opened or closed stores increased 24%, while so-called same-store sales in Europe increased 73%.
Michael Kors said it now expects to earn $3.07 to $3.09 per share for the fiscal year ending in March on revenue of $3.18 billion to $3.19 billion. That is up from guidance given in November of earnings per-share of $2.77 to $2.81 on revenue of $2.9 billion to $3 billion.