New product designs, plus a bigger push on investments in digital and technology, helped Michael Kors Holdings Ltd. post positive third-quarter earnings results that bested Wall Street’s estimates.
John D. Idol, chairman and chief executive officer, cited progress on the firm’s Runway 2020 initiative, in which turnaround efforts are focused primarily on brand engagement, customer experience and product innovation. He spoke during a company conference call to Wall Street analysts Wednesday morning after the firm posted earnings results.
The chairman said the company was able to leverage its database to deliver more personalized content across various digital channels, and it now has 25 million customers in its global database, representing a 23 percent gain compared with last year. The company also grew its social media audience by 18 percent to more than 40 million followers, including 11 million Instagram followers, Idol said.
He added that Kors is focused on making enhancements to its digital flagships and retail store fleet. Idol said the company is also using technology to “deliver a seamless omnichannel experience and elevated styling services in our stores.” The brand is in the process of rolling out Kors Connect, which allows sales associates the ability to “augment” the in-store selection with products from online and in other Kors stores. The program also allows associates to build user profiles of their customers. About 100 stores are slated for renovation over the next two years, he noted.
On the product side, Idol said the holiday assortment in accessories was composed of 50 percent new products. Bancroft was one of the top-selling groups over holiday.
“Bancroft was spotted on celebrities including Nicole Kidman, Angelina Jolie, Kate Hudson, Blake Lively and Amal Clooney. In our Michael Michael Kors line, the Mercer collection continued to be a favorite among consumers,” the ceo said, adding that there was also strong response to the introduction of Mercer Gallery, a pebbled leather tote with the brand’s signature lock detailing.
Other categories that did well include footwear, ready-to-wear and dresses, as well as its Access smartwatch collection. He also said the women’s rtw assortment is attracting a “new consumer to our stores that had not previously shopped the brand.”
In men’s sportswear, Idol said there was good response for outerwear and sweaters featuring softer yarns and lighter weight stitches.
Idol said spring will see an increase in new offerings, up to 65 percent. The fourth quarter is also expected to be the last one in which the firm will continue to clear out excess inventory. Once this final promotional cycle has ended, the company start its apples-to-apples comparison, he said. With the reduction in promotional activity, when the company introduced new product, the consumer bought it at full price because they couldn’t find it on sale. “So that means they responded to the design. Many of those items were at higher price points,” Idol concluded.
The executive also disclosed the firm’s plan to raise prices in the back half of the next fiscal year.
Idol said the starting in fall 2018, the Kors brand will be putting product out that will be “more expensive. So we are raising the average unit on floor retail, not by raising prices on existing styles but by elevating product that is going into the channels, our own stores and into the wholesale channel.”
He explained that the early read on limited products introduced during the holiday season has been “quite strong.” The best-selling dress was $395, and snake-skin Mercer handbags — one of its best-selling items — were priced at $495.
“So we’re finding, both in our own stores and in our wholesale partners’ shop-in-shops, that the customer, if it’s the right product, if it has the right level of design and value and look to it, that….we are able to sell things that are at a higher price,” Idol said.
He acknowledged that with less traffic in the stores, the company does need to get higher unit retails to help with “our long-term comps situation.”
For the quarter ended Dec. 30, net income rose 19.1 percent to $219.4 million, or $1.42 a diluted share, on a revenue increase of 6.5 percent to $1.44 billion, which included a $114.7 million contribution from the Jimmy Choo brand. Kors acquired Jimmy Choo in November for $1.2 billion. Adjusted diluted EPS for the quarter was $1.77.
Wall Street’s consensus estimate was $1.29 on revenues of $1.38 billion.
Shares of Michael Kors on Wednesday rose 1 percent to close at $66.11 in Big Board trading.