Overall, the retail sector has taken a beating this earnings season, with many discount retailers taking the brunt of the damage. However, investors have also seen severe weakness in luxury names too, such as Michael Kors Holdings Limited (NYSE:KORS), Coach Inc (NYSE:COH), and Kate Spade & Co (NYSE:KATE). Let’s take a closer look at these three important companies and see how they have done with their recent reports in this shaky environment:
The Demise of Michael Kors’ Shares
Michael Kors announced impressive earnings that crushed estimates during the conference call on August 4th during pre-market hours. For unlucky traders and investors though, KORS CEO John Idol quickly turned the atmosphere from a buoyant one to a depressing one, as shares tumbled from a high of $92 to a low of approximately $82.
This alarmed investors especially when KORS had crushed all revenue, profit, EPS, sales, and even Gross Margin estimates, in its first fiscal quarter of 2015. John Idol discouraged investors and traders by informing them that KORS has had too many promotions, and that it has grown too rapidly in the American market. Investors also showed concerns regarding inventory and margins.
Sales in Europe were excellent though, with revenue growth of about 128%, while revenue in Japan also burgeoned by about 89%. This was not enough to counter the negative sentiments of the investors as they quickly dumped the stock. The sharp green to red reversal has also pressed many analysts who had high hopes for the stock, to take a closer look at the company, though recent estimates seem to have focused on a solid outlook for the company.
Coach Gives Investors Relief
COH beat most of its estimates, but it did not soar as high as many thought it would. This was partly due to how KORS and KATE have managed to steal sales from COH. Nevertheless, COH beat Q4 estimates on its August 5th conference call almost everywhere except for sales in the US, which fell by around 16% from last year.
COH posted EPS of $0.59 which was better than the Zacks Consensus Estimate of $0.54, and international sales surged by 7% during the quarter. This was not sufficient though as costs rose, and men’s footwear sales were depressing. COH was up approximately 7% in pre market trading during the conference call, but later plunged back to once again depress investors. COH opened on August 5 at $35.32/share and closed at $35.80/share. This gave those investing in luxury retail a break from KORS’s collapse.
Kate Spade Makes a U-turn, Investors Devastated
KATE’s earnings were not too pleasing. August 13th marked KATE’s conference call with its COO, George Carrara, who had reported a Q2 loss of about $4.4 million, or $0.03/share. On the bright side, net sales rose to $266 million, or roughly 49%. KATE shares skyrocketed during pre market trading, but made a complete turnaround as the stock tanked a whopping 25%. The fashion firm’s gross margin was also threatened with a 3.2% decrease on that front.
KATE’s executives did not intend to compete with other luxury brands through the use of promotions and sales, but were forced to do so, in order to drive revenues.
Bottom Line
KATE holds a Zacks Rank #1 (Strong Buy), and many investors could look to seize this buying opportunity as KATE’s current price is a great entry point. KORS maintains a Zacks Rank #2 (Buy), and as of now, it stands at a very attractive price. On the other hand, COH is a Zacks Rank #5 (Strong Sell). This is due to the fact that it has shunned away investors with the bad news.
Perhaps KORS and KATE have become better retailers and stocks than COH, and given their recent performances, could be interesting picks at current levels for those willing to push through significant volatility.