Michael Kors Holdings Limited Announces Third Quarter Fiscal 2015 Results

Third Quarter Total Revenue Increased 29.9%; Comparable Store Sales Increased 8.6%

Third Quarter Reported Diluted EPS increased 33.3% to $1.48

LONDON--()--Michael Kors Holdings Limited (NYSE:KORS) (the “Company”), a global luxury lifestyle brand, today announced its financial results for the third quarter ended December 27, 2014.

“We are pleased to have repurchased approximately 5.1 million shares this quarter. This action demonstrates the Board and management’s confidence in our ability to generate strong free cash flow and to achieve our long term growth objectives.”

For the third quarter ended December 27, 2014:

  • Total revenue increased 29.9% to $1.3 billion from $1.0 billion in the third quarter of fiscal 2014. On a constant currency basis, total revenue increased 32.6%.
  • Retail net sales increased 37.0% to $689.4 million driven by 114 net new store openings since the end of the third quarter of fiscal 2014, e-commerce sales from the recently launched U.S. e-commerce site and an 8.6% increase in comparable store sales. On a constant currency basis, retail net sales grew 40.5%, and comparable store sales increased 10.9%. Wholesale net sales increased 24.4% to $573.8 million and on a constant currency basis, wholesale net sales grew 26.4%. Licensing revenue increased 8.6% to $51.5 million.
  • Revenue in North America increased 22.6% to $1.1 billion, with a 6.0% increase in comparable store sales. On a constant currency basis, revenue in North America grew 23.1%, with a 6.8% increase in comparable store sales. European revenue grew 72.1% to $241.4 million, with comparable store sales increasing 21.2%. On a constant currency basis, revenue in Europe grew 86.3%, with a 29.9% increase in comparable store sales. Revenue in Japan increased 72.1% to $16.0 million, with comparable store sales growth of 35.4%. On a constant currency basis, revenue in Japan grew 96.3%, with a 54.4% increase in comparable store sales.
  • Gross profit increased 29.2% to $800.1 million, and as a percentage of total revenue was 60.9% compared to 61.2% in the third quarter of fiscal 2014.
  • Income from operations was $418.5 million, or 31.8% as a percentage of total revenue, as compared to $343.2 million, or 33.9% as a percentage of total revenue, for the third quarter of fiscal 2014.
  • Net income was $303.7 million, or $1.48 per diluted share, based on a 27.2% tax rate and 205.6 million weighted average diluted shares outstanding. Net income for the third quarter of fiscal 2014 was $229.6 million, or $1.11 per diluted share, based on a 33.1% tax rate and 206.1 million weighted average diluted shares outstanding.
  • At December 27, 2014, the Company operated 509 retail stores, including concessions, compared to 395 retail stores, including concessions, at the end of the same prior-year period. The Company had 194 additional retail stores, including concessions, operated through licensing partners. Including licensed locations, there were 703 Michael Kors stores worldwide at the end of the third quarter of fiscal 2015.

John D. Idol, the Company’s Chairman and Chief Executive Officer, said, “Our third quarter marked the 13th consecutive period of growth in revenue, comparable store sales and earnings, since our initial public offering. We had a strong holiday season, with comparable stores sales performance led by double digit growth in our accessories category, both in our retail and wholesale channels. We also saw continued momentum across our operating segments and geographies driven by our compelling fashion product offering and jet-set luxury experience that resonated well with customers. In addition, we continued to advance on our multiple growth strategies and in particular, we saw exceptional performance from our recently launched Company-owned U.S. e-commerce site, which exceeded our expectations. E-commerce sales increased 73% in the quarter, as compared to sales at the previous outsourced site. Had we included e-commerce in our comparable store base, North America comparable store sales results would have been 380 basis points higher, which we believe is a more accurate reflection of our performance. It is clear that Michael Kors remains a leader within the global fashion luxury market and our brand continues to resonate with consumers around the world. Overall, we see continued momentum in our business, remain confident in our long-term potential and are committed to enhancing value for our shareholders.”

For the first nine months ended December 27, 2014:

  • Total revenue for the first nine months increased 37.5% to $3.3 billion from $2.4 billion in the same period of fiscal 2014. On a constant currency basis, total revenue increased 38.6%.
  • Retail net sales increased 40.6% to $1.7 billion. Comparable store sales increased 15.4%. On a constant currency basis, retail net sales grew 42.1%, and comparable store sales increased 16.2%. Wholesale net sales increased 35.4% to $1.5 billion and on a constant currency basis, wholesale net sales grew 36.1%. Licensing revenue increased 24.4% to $130.6 million.
  • Gross profit for the first nine months increased 37.5% to $2.0 billion, and as a percentage of total revenue was 61.3%, flat as compared to the same period of fiscal 2014.
  • Income from operations for the first nine months was $1.0 billion and as a percentage of total revenue was 30.4%. For the same period of fiscal 2014, income from operations was $762.3 million, or 31.8% as a percentage of total revenue.
  • Net income for the first nine months was $698.4 million, or $3.38 per diluted share, based on 206.8 million weighted average diluted shares outstanding. Net income for the same period of fiscal 2014 was $500.4 million, or $2.44 per diluted share, based on 205.2 million weighted average diluted shares outstanding.

Share Repurchase Program

During the quarter, the Company repurchased 5,068,813 shares of the Company’s ordinary shares for approximately $399.9 million.

Joseph B. Parsons, Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer, stated, “We are pleased to have repurchased approximately 5.1 million shares this quarter. This action demonstrates the Board and management’s confidence in our ability to generate strong free cash flow and to achieve our long term growth objectives.”

Outlook

For the fourth quarter of fiscal 2015, the Company expects total revenue to be in the range of $1.05 billion to $1.08 billion. This assumes a comparable store sales increase of mid-single digits on a reported basis and an increase of high single digits on a constant currency basis. Diluted earnings per share are expected to be in the range of $0.89 to $0.92 for the fourth quarter of fiscal 2015. This assumes 203.0 million weighted average diluted shares outstanding and a tax rate of approximately 30.0%.

For fiscal 2015, the Company now expects total revenue to be approximately $4.4 billion. This assumes a comparable store sales increase of low double digits on a reported basis, and an increase of low to mid-teens on a constant currency basis. Diluted earnings per share are now expected to be in the range of $4.27 to $4.30 for fiscal 2015. This assumes 205.8 million weighted average diluted shares outstanding and a tax rate of approximately 30.0%.

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, February 5, 2015 at 8:00 a.m. ET. A replay of the call will be available today at 11:00 a.m. ET; to access the replay, dial 1-877-870-5176 for domestic callers or dial 1-858-384-5517 for international callers and enter access code 2052118. The conference call will also be webcast live in the investor relations section of www.michaelkors.com. The webcast will be accessible on the website for approximately 90 days after the call.

About Michael Kors

Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready to wear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors and MICHAEL Michael Kors labels, including accessories, footwear, watches, jewelry, men’s and women’s ready to wear, and a full line of fragrance products. Michael Kors stores are operated, either directly or through licensing partners, in some of the most prestigious cities in the world, including New York, Beverly Hills, Chicago, London, Milan, Paris, Munich, Istanbul, Dubai, Seoul, Tokyo and Hong Kong.

Forward Looking Statements

This press release contains forward-looking statements. You should not place undue reliance on such statements because they are subject to numerous uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Forward-looking statements include information concerning the Company’s possible or assumed future results of operations, including descriptions of its business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. The forward-looking statements contained in this press release are based on assumptions that the Company has made in light of management’s experience in the industry as well as its perceptions of historical trends, current conditions, expected future developments and other factors that it believes are appropriate under the circumstances. You should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect its actual financial results or results of operations and could cause actual results to differ materially from those in these forward-looking statements. These factors are more fully discussed in the "Risk Factors" section and elsewhere in the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2014 (File No. 001-35368), filed on May 28, 2014 with the U.S. Securities and Exchange Commission.

 
 
SCHEDULE 1
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data)
(Unaudited)
           
Three Months Ended Nine Months Ended
December 27, December 28, December 27, December 28,
2014 2013 2014 2013
 
Net sales $ 1,263,226 $ 964,787 $ 3,159,932 $ 2,288,479
Licensing revenue   51,500     47,442     130,553     104,912  
Total revenue 1,314,726 1,012,229 3,290,485 2,393,391
Cost of goods sold   514,583     392,731     1,273,682     926,747  
Gross profit 800,143 619,498 2,016,803 1,466,644
Total operating expenses   381,666     276,258     1,015,997     704,382  
Income from operations 418,477 343,240 1,000,806 762,262
Other expense (income) 150 - (1,396 ) -
Interest expense, net 116 109 147 409
Foreign currency loss   1,201     3     4,946     279  
Income before provision for income taxes 417,010 343,128 997,109 761,574
Provision for income taxes   113,335     113,485     298,728     261,127  
Net income $ 303,675   $ 229,643   $ 698,381   $ 500,447  
 
Weighted average ordinary shares outstanding:
Basic 202,668,541 203,175,380 203,627,688 202,314,813
Diluted 205,647,816 206,088,062 206,752,103 205,192,959
 
Net income per ordinary share:
Basic $ 1.50 $ 1.13 $ 3.43 $ 2.47
Diluted $ 1.48 $ 1.11 $ 3.38 $ 2.44
 
Statements of Comprehensive Income:
Net income $ 303,675 $ 229,643 $ 698,381 $ 500,447
Foreign currency translation adjustments (22,220 ) (1,745 ) (46,824 ) 3,228
Net realized and unrealized gains (losses) on derivatives   2,769     (496 )   13,327     (3,709 )
Comprehensive income $ 284,224   $ 227,402   $ 664,884   $ 499,966  
 
 
SCHEDULE 2
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
             
December 27, March 29, December 28,
Assets 2014 2014 2013
Current assets
Cash and cash equivalents $ 949,846 $ 955,145 $ 828,341
Receivables, net 364,070 314,055 292,812
Inventories 537,501 426,938 431,564
Deferred tax assets 21,555 30,539 10,790
Prepaid expenses and other current assets   110,347     50,492     36,722  
Total current assets 1,983,319 1,777,169 1,600,229
Property and equipment, net 532,304 350,678 321,542
Intangible assets, net 63,644 48,034 42,098
Goodwill 14,005 14,005 14,005
Deferred tax assets 3,740 3,662 9,633
Other assets   33,576     23,425     19,456  
Total assets $ 2,630,588   $ 2,216,973   $ 2,006,963  
 
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 175,197 $ 131,953 $ 145,363
Accrued payroll and payroll related expenses 50,642 54,703 42,416
Accrued income taxes 29,757 47,385 11,645
Accrued expenses and other current liabilities   105,726     74,329     75,829  
Total current liabilities 361,322 308,370 275,253
Deferred rent 94,926 76,785 72,293
Deferred tax liabilities 145 5,887 20,014
Other long-term liabilities   22,710     19,800     15,453  
Total liabilities 479,103 410,842 383,013
Commitments and contingencies
Shareholders' equity
Ordinary shares, no par value; 650,000,000 shares authorized, and 201,029,249 shares
issued and outstanding at December 27, 2014, 204,291,345 shares issued and outstanding
at March 29, 2014, and 203,882,679 shares issued and outstanding at December 28, 2013 - - -
Treasury shares, at cost (5,139,365 shares at December 27, 2014, 29,765 at March 29, 2014, (405,702 ) (2,447 ) (2,447 )
and 29,765 at December 28, 2013)
Additional paid-in capital 610,938 527,213 503,639
Accumulated other comprehensive loss (39,870 ) (6,373 ) (3,942 )
Retained earnings   1,986,119     1,287,738     1,126,700  
Total shareholders' equity   2,151,485     1,806,131     1,623,950  
Total liabilities and shareholders' equity $ 2,630,588   $ 2,216,973   $ 2,006,963  
             
 

SCHEDULE 3

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED SEGMENT DATA

(In thousands)

(Unaudited)

 
Three Months Ended Nine Months Ended
December 27, December 28, December 27, December 28,
2014 2013 2014 2013
Revenue by Segment and Region:

Retail net sales:

North America

$ 551,840 $ 423,724 $ 1,296,398 $ 993,462

 

Europe

121,518 70,340 321,558 166,044

 

Japan

  16,030     9,316     47,253     25,119  
Total Retail Net Sales 689,388 503,380 1,665,209 1,184,625
 

Wholesale net sales:

North America

476,239 397,599 1,203,960 940,222

 

Europe

  97,599     63,808     290,763     163,632  
Total Wholesale Net Sales 573,838 461,407 1,494,723 1,103,854
 

Licensing revenue:

North America

29,202 41,296 78,038 98,766

 

Europe

  22,298     6,146     52,515     6,146  
Total Licensing Revenue 51,500 47,442 130,553 104,912
       
Total Revenue $ 1,314,726   $ 1,012,229   $ 3,290,485   $ 2,393,391  
 
Income from Operations:
Retail $ 214,928 $ 171,281 $ 484,951 $ 377,528
Wholesale 170,487 140,685 444,811 320,262
Licensing   33,062     31,274     71,044     64,472  
Total Income from Operations $ 418,477   $ 343,240   $ 1,000,806   $ 762,262  
 
Operating Margin:
Retail 31.2 % 34.0 % 29.1 % 31.9 %
Wholesale 29.7 % 30.5 % 29.8 % 29.0 %
Licensing 64.2 % 65.9 % 54.4 % 61.5 %
Total Operating Margin 31.8 % 33.9 % 30.4 % 31.8 %
 
As of
December 27, 2014 December 28, 2013
Store Count and Square Footage by Region: Store Count Square Footage Store Count Square Footage
North America 337 941,115 284 725,034
Europe 125 300,429 76 150,162
Japan   47     60,125     35     42,785  
Total   509     1,301,669     395     917,981  
 
 

SCHEDULE 4

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES

CONSTANT CURRENCY DATA

(In thousands)

(Unaudited)

           
Segment Data
Three Months Ended % Change
December 27, December 28, As Constant
2014 2013 Reported Currency
 
Retail net sales $ 689,388 $ 503,380 37.0 % 40.5 %
Wholesale net sales 573,838 461,407 24.4 % 26.4 %
Licensing revenue   51,500     47,442   8.6 % 8.6 %
 
Total revenue $ 1,314,726   $ 1,012,229   29.9 % 32.6 %
 
Nine Months Ended % Change
December 27, December 28, As Constant
2014 2013 Reported Currency
 
Retail net sales $ 1,665,209 $ 1,184,625 40.6 % 42.1 %
Wholesale net sales 1,494,723 1,103,854 35.4 % 36.1 %
Licensing revenue   130,553     104,912   24.4 % 24.4 %
 
Total revenue $ 3,290,485   $ 2,393,391   37.5 % 38.6 %
 
 
Comparable Store Sales Data
 
Three Months Ended Nine Months Ended
December 27, December 28, December 27, December 28,
2014 2013 2014 2013
As Reported Constant Currency As Reported Constant Currency
North America 6.0 % 6.8 % 11.1 % 11.8 %
Europe 21.2 % 29.9 % 36.8 % 36.5 %
Japan   35.4 %   54.4 % 45.3 % 56.1 %
Global 8.6 % 10.9 % 15.4 % 16.2 %
 

Contacts

Investor Relations:
Michael Kors Holdings Limited
Krystyna Lack - VP, Treasurer
201-691-6133
InvestorRelations@MichaelKors.com
Or
ICR, Inc.
Jean Fontana, 203-682-1214
jean.fontana@icrinc.com
or
Media:
ICR, Inc.
Alecia Pulman, 646-277-1231
KorsPR@icrinc.com

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