Will Michael Kors (KORS) Retain Momentum In Q4 Earnings?

Michael Kors Holdings Limited (NYSE:KORS) is scheduled to report fourth-quarter fiscal 2017 results on May 31. In the last quarter, the company delivered a positive earnings surprise of 1.2%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

Michael Kors has a remarkable history, at least in terms of the bottom line. The company continued with its positive earnings surprise streak for the seventh straight quarter, when it reported third-quarter fiscal 2017 results. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 7.6%. The current Zacks Consensus Estimate for the quarter is 70 cents, reflecting a year-over-year decline of over 28%. Analysts polled by Zacks expect revenues of $1,048 million, down over 12% from the year-ago quarter.

Well the obvious question that comes to mind, will Michael Kors be able to continue with its positive earnings surprise streak in the third quarter. Well past trends do indicate toward that direction but it will not feasible to jump to a conclusion without analyzing the factors at play.

Factors at Play

Michael Kors has been constantly deploying resources to expand product offerings, open new stores, build shop-in-shops along with upgrading its information system and distribution infrastructure. Management intends to upgrade eCommerce platform and expects the channel to be a significant contributor in the long run. We note that despite the possibility of heavy investments weighing upon the margins in the short term, management continues to take up strategic endeavors. These are important in the light of competitive retail landscape, sluggish mall traffic and short-term challenges such as foreign currency headwinds.

Shares of Michael Kors came under pressure after the company posted a decline in the top line during the third quarter of fiscal 2017 and provided a bleak outlook. Results were hurt by comparable sales performance of North American and European markets. Further, it stated that headwinds in the aforementioned market will continue throughout the spring season. Michael Kors had earlier forecast total revenue between $1.035 billion and $1.055 billion, and anticipates comparable sales to decline in the low-teens range during the fourth quarter. Management had projected earnings in the range of 68–72 cents a share.

What the Zacks Model Unveils?

Well our proven model does not conclusively show that Michael Kors is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Michael Kors has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 70 cents. Moreover, the company carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Fastenal Company (NASDAQ:FAST) currently has an Earnings ESP of +4.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Expedia, Inc. (NASDAQ:EXPE) currently has an Earnings ESP of +3.28% and a Zacks Rank #3.

Lithia Motors, Inc. (NYSE:LAD) currently has an Earnings ESP of +0.91% and a Zacks Rank #3.

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