Michael Kors peaked in early 2014 and have since then declined in month after month. The stock is trading at about $42 on the last day of May 2016. The outlook for luxury goods has been very disappointing and it still is.
It seems like the consumer spending has been transitioning away from luxury goods to technology and experiences such as food and travel. Michael Kors is a strong brand and still has a strong appeal to the consumers, but the luxury space is struggling to come back.
Long investors think this is a short blip and that the stock will come back, but many people out there belive what we see right now is the new normal. The market for luxury goods have been very disappointing so far this year.
British luxury brand Burberry has declined, and they blame on weak demand in Hong Kong and a drop in tourist spending in Europe. Gap Inc is not better, and their performance can be an indication of incredible softness in the retail industry worldwide.
Nordstrom is also removing Michael Kors handbags from its stores at a rapid space, according to a report from Wedbush. Managers at Nordstrom said declining interest from shoppers for MK products led to the decision.
Not only that. Macys is offering discounts on MK handbags due to oversupply. Furthermore, both Nordstrom and Macys reported weak Q1 earnings due in part to a drop in foot traffic at stores. Just like last year, 2016 will be a challenging year for luxury goods.
Luxury goods sales are expected to rise about 3,5%, from $317 billion to $328 billion.
So far this year, we have also seen losses from luxury retailer Tiffany`s, setting the stage from weakness from Michael Kors, Vera Bradley, and Lululemon over the next week. In an effort to drive top line growth, MK has focused on opening new stores.
Last quarter the company opened 34 new stores, consisting of 15 in the United States and the rest in International markets.
While the new stores will increase operating costs and contract margins, they should help generate higher revenue in the near term.
Global stores should continue to see adverse impacts from weak currency conditions. Regardless, MK continue to deliver positive growth in key financial metrics including revenue, net sales, profits and net income.
The Estimize consensus is calling for earnings of 98 cents per share on $1,156 Billion in revenue, 2 cents higher than Wall Street on the bottom line and right in line on the top. Since the holiday season earnings estimates have fallen 3% while revenue has dropped only 1%.
Year over year comparisons are now projecting a 9% increase in profitability with sales anticipated to grow 11%.
Michael Kors is expecting to report on June 1, before the open.
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