Jimmy Choo kicks up Michael Kors revenue

Dive Brief:

Michael Kors Holdings on Wednesday reported that total first quarter revenue rose 26.3% to $1.2 billion, including a $172.7 million contribution from newly acquired Jimmy Choo, which was consolidated into results effective November 1 last year. Adjusted net income in the quarter was $200.7 million, according to a company press release.
By segment: Michael Kors brand retail revenue rose 3.2% to $639.5 million (including a net favorable foreign currency impact of $15 million), driven in large part by nine net new store openings since the end of the year-ago quarter. Comparable sales rose 0.2% (declining 2.1% in constant currency), with positive performance in the Americas and Asia, partially offset by expected declines in Europe. Kors wholesale revenue rose 19.5% to $362.8 million, and Kors licensing revenue fell 4.8% to $27.5 million. Jimmy Choo revenue exceeded expectations due to strong performance in footwear, the company said.
Based on the better-than-expected performance, the company raised its full-year total revenue guidance to approximately $5.1 billion, including between $580 million and $590 million of incremental Jimmy Choo revenue, and its operating margin guidance to about 18%. Comparable sales for Michael Kors is expected to be approximately flat, in line with prior guidance, the company said.

Dive Insight:

After floundering in recent years with an overflow of merchandise, stores and department store concessions that precipitated discounts, Michael Kors appears to be setting sales back on track, with a little help from its new Jimmy Choo unit.

The company deserves credit for the correction, according to GlobalData Retail Managing Director Neil Saunders. "The pullback on discounting and promotional activity has not only produced better margins but has also reduced the flood of product onto the market which previously made the Michael Kors label too ubiquitous," he said in comments emailed to Retail Dive.

That's in part thanks to better merchandise, according to a note from Jane Hali & Associates emailed to Retail Dive

"At Michael, Michael Kors, both online and in-store, we have noticed more elevated handbag product," Jane Hali analysts said. "They continue to carry trending silhouettes such as backpacks, cross bodies and totes. The pre-fall collection, picked up on the streetwear trend with graffiti inspired detailing. They have launched a limited-edition graffiti capsule that includes jackets, shoes and bags. The Jimmy Choo assortment is on trend with a mixed assortment of heels, booties, sandals and sneakers."

It's not just the merchandise that's on the rise, according to Jane Hali. The retailer also has a strong social media play (significantly growing its stable of followers of late), will be among the first brands to leverage Facebook's new virtual try-on feature and effectively uses WeChat in China, they said. Michael Kors also recently launched their shopping app, part of a rewards program launched earlier this year, where customers can chat with a stylist. "Overall the shopping experience is very tailored to the consumer and makes it easy to shop," according to Jane Hali. "Online, we continue to see improvements in navigation, it is a much more streamlined experience."

But like many in retail, the company is benefiting from a healthy U.S. economy and not just its own changes. "Our data show an elevated level of spending on luxury products thanks to tax cuts and bonuses which have boosted consumer finances," Saunders said. "[T]he same trend did not play out in Europe where, hindered by a more frugal and cautious approach to spending, Michael Kors' retail sales fell on both a total and comparable basis."

That begs the question of "whether the brand would fare so well if the external environment was not quite so favorable," he also said, adding that the company is moving in the right direction.