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Michael Kors Holdings Limited Announces Second Quarter Fiscal 2018 Results

November 6, 2017 6:55 AM

Exceeds Second Quarter Guidance; Raises Full Year Outlook

LONDON--(BUSINESS WIRE)-- Michael Kors Holdings Limited (NYSE: KORS) (the “Company”), a global fashion luxury group, today announced its financial results for the fiscal 2018 second quarter ended September 30, 2017. Earnings per diluted share were $1.32 on a reported basis and $1.33 on an adjusted basis, an increase of 37% versus prior year.

John D. Idol, the Company’s Chairman and Chief Executive Officer, said, “This is a transformative time for Michael Kors Holdings Limited as we established our global fashion luxury group with the recently completed acquisition of Jimmy Choo. We believe that bringing together these two iconic brands further strengthens our growth opportunities, increases our product and geographic diversification, and importantly, creates a platform for future acquisitions. We look forward to capitalizing on the great opportunities that lay ahead for our brands and believe that we are well positioned to drive long term growth as we expand our global fashion luxury group.”

Mr. Idol continued, “Our second quarter results were better than expected, and we are pleased with our continued progress executing on our strategic plan, Runway 2020. The positive signs that we are seeing in our business illustrate that our efforts across product innovation, brand engagement and our customer experience are beginning to take hold. While we continue to expect fiscal 2018 to be a transition year for the Michael Kors brand, ultimately we believe that these efforts will drive improved financial performance.”

Established a global fashion luxury group bringing together two iconic brands

Delivered continued progress on Runway 2020 strategic plan

For the second quarter ended September 30, 2017:

For the six months ended September 30, 2017:

Balance Sheet

As of September 30, 2017, the Company had no debt recorded on its balance sheet. Currently, the Company has approximately $1.00 billion available for future borrowings under its revolving credit facilities.

Outlook

For the third quarter of fiscal 2018, the Company expects total revenue to be between $1.355 billion and $1.385 billion, including between $105 million and $110 million of incremental Jimmy Choo revenue. Comparable sales for the Michael Kors brand are expected to decline in the high-single digits. The Company expects operating margin to be approximately 17.5%. Diluted earnings per share are expected to be in the range of $1.22 to $1.27, including the anticipated dilution from Jimmy Choo of approximately $0.04. This assumes approximately 155 million weighted average diluted shares outstanding and a tax rate of approximately 17.5%.

For fiscal 2018, the Company expects total revenue to be approximately $4.59 billion, including between $215 million and $225 million of incremental Jimmy Choo revenue. Comparable sales for the Michael Kors brand are expected to decline in the mid-single digits. The Company expects operating margin to be approximately 16.0%. Diluted earnings per share are expected to be in the range of $3.85 to $3.95, including the anticipated dilution from Jimmy Choo of approximately $0.08. This assumes approximately 156 million weighted average diluted shares outstanding and a tax rate of approximately 17.0%.

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, November 6, 2017 at 8:30 am. ET. A live webcast of the conference call will be available on the Company’s investor relations website, www.investors.michaelkors.com. In addition, a replay of the call will be available shortly after the conclusion of the call and remain available until November 13, 2017. To access the telephone replay, listeners should dial 1-844-512-2921 or 1-412-317-6671 for international callers. The access code for the replay is 2836304. A replay of the web cast will also be available within two hours of the conclusion of the call and will remain on the website for 90 days.

Use of Non-GAAP Financial Measures

Constant currency effects are non-GAAP financial measures, which are provided to supplement our reported operating results to facilitate comparisons of our operating results and trends in our business, excluding the effects of foreign currency rate fluctuations. Because we are a global Company, foreign currency exchange rates may have a significant effect on our reported results. We calculate constant currency measures and the related foreign currency impacts by translating the current-year’s reported amounts into comparable amounts using prior year’s foreign exchange rates for each currency. All constant currency performance measures discussed below should be considered a supplement to and not in lieu of our operating performance measures calculated in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Additionally, this earnings release includes certain non-GAAP financial measures relating to certain one-time costs associated with the Jimmy Choo acquisition, restructuring and non-cash impairment charges primarily associated with underperforming retail stores and the acquisition of the Greater China licensee. The Company uses non-GAAP financial measures, among other things, to evaluate its operating performance and in order to represent the manner in which the Company conducts and views its business. The Company believes that excluding non-recurring items helps its management and investors compare operating performance based on its ongoing operations. While the Company considers the non-GAAP measures to be useful supplemental measures in analyzing its results, they are not intended to replace, nor act as a substitute for, any amounts presented in its consolidated financial statements prepared in conformity with U.S. GAAP and may be different from non-GAAP measures reported by other companies.

About Michael Kors Holdings Limited

Michael Kors Holdings Limited is a global fashion luxury group, consisting of iconic brands that are industry leaders in design, style and craftsmanship. Its brands cover the full spectrum of fashion luxury categories including women’s and men’s accessories, footwear and apparel as well as wearable technology, watches, jewelry, eyewear and a full line of fragrance products. The company’s goal is to continue to extend the global reach of its brands while ensuring that they maintain their independence and exclusive DNA. Michael Kors Holdings Limited is publicly listed on the New York Stock Exchange under the ticker KORS.

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 April 1, 2017 (File No. 001-35368), Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2017 (File No. 001-35368) and other reports filed with the U.S. Securities and Exchange Commission.

SCHEDULE 1
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended
September 30,2017 October 1,2016 September 30,2017 October 1,2016
Net sales $ 1,108.6 $ 1,049.4 $ 2,032.1 $ 2,006.7
Licensing revenue 38.0 38.8 66.9 69.4
Total revenue 1,146.6 1,088.2 2,099.0 2,076.1
Cost of goods sold 455.8 443.5 833.5 840.1
Gross profit 690.8 644.7 1,265.5 1,236.0
Total operating expenses 491.7 441.0 917.0 845.4
Income from operations 199.1 203.7 348.5 390.6
Other income, net (0.3 ) (0.3 ) (0.9 ) (0.6 )
Interest expense, net 0.8 1.4 1.9 1.7
Foreign currency (gain) loss (40.5 ) — (41.7 ) 1.3
Income before provision for income taxes 239.1 202.6 389.2 388.2
Provision for income taxes 36.4 41.9 61.0 81.2
Net income 202.7 160.7 328.2 307.0
Less: Net loss attributable to noncontrolling interest (0.2 ) (0.2 ) (0.2 ) (1.0 )
Net income attributable to MKHL $ 202.9 $ 160.9 $ 328.4 $ 308.0
Weighted average ordinary shares outstanding:
Basic 151,781,340 166,695,631 153,134,119 170,427,101
Diluted 154,168,094 168,839,967 155,519,806 172,726,859
Net income per ordinary share:
Basic $ 1.34 $ 0.97 $ 2.14 $ 1.81
Diluted $ 1.32 $ 0.95 $ 2.11 $ 1.78
SCHEDULE 2
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
September 30,2017 April 1,2017 October 1,2016
Assets
Current assets
Cash and cash equivalents $ 178.2 $ 227.7 $ 186.4
Receivables, net 274.5 265.8 288.0
Inventories 696.5 549.3 695.7
Prepaid expenses and other current assets 181.5 121.9 146.0
Total current assets 1,330.7 1,164.7 1,316.1
Property and equipment, net 562.7 591.5 801.0
Intangible assets, net 405.7 418.1 463.4
Goodwill 119.7 119.7 119.7
Deferred tax assets 69.2 73.3 19.0
Other assets 43.7 42.3 36.1
Total assets $ 2,531.7 $ 2,409.6 $ 2,755.3
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 174.0 $ 176.3 $ 179.7
Accrued payroll and payroll related expenses 51.9 61.1 45.8
Accrued income taxes 60.1 60.3 45.5
Short-term debt — 133.1 384.4
Accrued expenses and other current liabilities 188.7 135.0 176.9
Total current liabilities 474.7 565.8 832.3
Deferred rent 131.7 137.8 126.2
Deferred tax liabilities 78.7 80.0 88.6
Other long-term liabilities 41.4 31.0 24.9
Total liabilities 726.5 814.6 1,072.0
Commitments and contingencies
Shareholders’ equity
Ordinary shares, no par value; 650,000,000 shares authorized; 210,200,479 shares issued and 152,066,668 outstanding at September 30, 2017; 209,332,493 shares issued and 155,833,304 outstanding at April 1, 2017, and 209,020,770 shares issued and 164,233,915 outstanding at October 1, 2016 — — —
Treasury shares, at cost (58,133,811 shares at September 30, 2017; 53,499,189 shares at April 1, 2017; and 44,786,855 shares at October 1, 2016) (2,815.8 ) (2,654.9 ) (2,304.8 )
Additional paid-in capital 791.9 767.8 749.3
Accumulated other comprehensive loss (59.6 ) (80.6 ) (79.8 )
Retained earnings 3,888.5 3,560.3 3,315.8
Total shareholders’ equity of MKHL 1,805.0 1,592.6 1,680.5
Noncontrolling interest 0.2 2.4 2.8
Total shareholders’ equity 1,805.2 1,595.0 1,683.3
Total liabilities and shareholders’ equity $ 2,531.7 $ 2,409.6 $ 2,755.3
SCHEDULE 3
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED SEGMENT DATA
($ in millions)
(Unaudited)
Three Months Ended Six Months Ended
September 30,2017 October 1,2016 September 30,2017 October 1,2016
Revenue by Segment and Region:
Retail net sales: The Americas $ 385.5 $ 385.6 $ 777.6 $ 777.8
Europe 154.2 131.2 276.3 250.3
Asia 105.3 80.4 211.0 132.0
Total Retail Net Sales 645.0 597.2 1,264.9 1,160.1
Wholesale net sales: The Americas 340.4 332.6 567.6 614.7
Europe 104.5 104.9 169.5 195.7
Asia 18.7 14.7 30.1 36.2
Total Wholesale Net Sales 463.6 452.2 767.2 846.6
Licensing revenue: The Americas 26.0 26.9 40.8 43.4
Europe 12.0 11.9 26.1 26.0
Total Licensing Revenue 38.0 38.8 66.9 69.4
Total Revenue $ 1,146.6 $ 1,088.2 $ 2,099.0 $ 2,076.1
Income from Operations:
Retail $ 69.0 $ 69.6 $ 161.2 $ 136.2
Wholesale 119.6 122.0 163.1 227.0
Licensing 10.5 12.1 24.2 27.4
Total Income from Operations $ 199.1 $ 203.7 $ 348.5 $ 390.6
Operating Margin:
Retail 10.7 % 11.7 % 12.7 % 11.7 %
Wholesale 25.8 % 27.0 % 21.3 % 26.8 %
Licensing 27.6 % 31.2 % 36.2 % 39.5 %
Total Operating Margin 17.4 % 18.7 % 16.6 % 18.8 %
September 30,2017
Store Count and Square Footage by Region: Store Count Square Footage
The Americas (U.S., Canada and Latin America) 398 1,288,471
Europe 201 548,630
Asia 244 482,019
Total 843 2,319,120

SCHEDULE 4

MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES

CONSTANT CURRENCY DATA

(In millions)

(Unaudited)

Three Months Ended % Change

September 30,2017

October 1,2016

As

Reported

Constant

Currency

Retail net sales $ 645.0 $ 597.2 8.0 % 7.2

%

Wholesale net sales

463.6

452.2

2.5 % 1.2

%

Licensing revenue

38.0

38.8

(2.1 )% (2.1

)%

Total revenue $ 1,146.6 $ 1,088.2 5.4 % 4.4

%

Six Months Ended

% Change

September 30,2017

October 1,2016

As

Reported

Constant

Currency

Retail net sales $

1,264.9

$

1,160.1

9.0

%

9.3

%
Wholesale net sales

767.2

846.6

(9.4

)%

(9.9

)%
Licensing revenue

66.9

69.4

(3.6

)%

(3.6

)%
Total revenue $

2,099.0

$

2,076.1

1.1

%

1.0

%

SCHEDULE 5

NON-GAAP RECONCILIATIONS OF REPORTED TO ADJUSTED MEASURES,
EXCLUDING LONG-LIVED ASSET IMPAIRMENTS,
RESTRUCTURING AND OTHER CHARGES,
TRANSACTION COSTS AND DERIVATIVE CONTRACT
RELATED TO ACQUISITION OF JIMMY CHOO
(In millions, except share and per share data)
(Unaudited)
Three Months Ended September 30, 2017
As Reported

Impairment Charges

Restructuring and Other Charges

Transaction Costs

Acquisition Price Derivative Contract

As Adjusted
Total revenue $ 1,146.6 $ — $ — $ — $ — $

1,146.6

Operating expenses $ 491.7 $ (16.3 ) $ (5.9 ) $ (16.1 ) $ — $ 453.4
Operating expense as percentage of revenue 42.9 % (1.4 )% (0.6 )% (1.4 )% —

%

39.5

%

Total income from operations $ 199.1 $ 16.3 $ 5.9 $ 16.1 $ — $ 237.4
Total operating margin 17.4 % 1.4 % 0.5 % 1.4 % — % 20.7 %
Retail net sales $ 645.0 $ — $ — $ — $ — $ 645.0
Retail operating income $ 69.0 $ 16.3 $ 5.9 $ 8.0 $ — $ 99.2
Retail operating margin 10.7 % 2.5 % 0.9 % 1.3 % — % 15.4 %
Wholesale net sales $ 463.6 $ — $ — $ — $ — $ 463.6
Wholesale operating income $ 119.6 $ — $ — $ 6.9 $ — $ 126.5
Wholesale operating margin 25.8 % — % — % 1.5 % — 27.3 %
Foreign currency gain $ (40.5 ) $ — $ — $ — $ 36.7 $ (3.8 )
Net income attributable to MKHL $ 202.9 $ 13.4 $ 3.7 $ 14.2 $ (29.7 ) $ 204.5
Weighted average diluted ordinary shares outstanding 154,168,094 — — — — 154,168,094
Diluted net income per ordinary share attributable to MKHL $ 1.32 $ 0.09 $ 0.02 $ 0.09 $ (0.19 ) $ 1.33
Six Months Ended September 30, 2017
As Reported

Impairment Charges

Restructuring and Other Charges

Transaction Costs

Acquisition Price Derivative Contract

As Adjusted
Total revenue $ 2,099.0 $ — $ — $ — $ — $ 2,099.0

Operating expenses $ 917.0 $ (16.3 ) $ (5.9

)

$ (17.4

)

$ — $ 877.4
Operating expense as percentage of revenue 43.7

%

(0.8 )% (0.3 )% (0.8 )% —

%

41.8 %
Total income from operations $ 348.5 $ 16.3 $ 5.9 $ 17.4 $ — $ 388.1
Total operating margin 16.6 % 0.8 % 0.3 % 0.8 % — % 18.5 %
Retail net sales $ 1,264.9 $ — $ — $ — $ — $ 1,264.9
Retail operating income $ 161.2 $ 16.3 $ 5.9 $ 8.6 $ — $ 192.0
Retail operating margin 12.7 % 1.3 % 0.5 % 0.7 % — % 15.2 %
Foreign currency gain $ (41.7 ) $ — $ — $ — $ 36.7 $ (5.0 )
Net income attributable to MKHL $ 328.4 $ 13.4 $ 3.7 $ 15.3 $ (29.7 ) $ 331.1
Weighted average diluted ordinary shares outstanding 155,519,806 — — — — 155,519,806
Diluted net income per ordinary share attributable to MKHL $ 2.11 $ 0.09 $ 0.02 $ 0.10 $ (0.19 ) $ 2.13
SCHEDULE 6
NON-GAAP RECONCILIATION OF REPORTED NET INCOME
TO ADJUSTED NET INCOME AND NET INCOME PER SHARE, EXCLUDING
LONG-LIVED ASSET IMPAIRMENTS AND TRANSACTION COSTS
RELATED TO ACQUISITION OF THE GREATER CHINA BUSINESS
(In millions, except share and per share data)
(Unaudited)
Three Months Ended October 1, 2016
As Reported Impairment Charges As Adjusted
Total revenue $ 1,088.2 $ — $ 1,088.2
Operating expenses $ 441.0 $ (4.9 ) $ 436.1
Operating expense as percentage of revenue 40.5 % (0.4 )% 40.1 %
Total income from operations $ 203.7 $ 4.9 $ 208.6
Total operating margin 18.7 % 0.5 % 19.2 %
Retail net sales $ 597.2 $ — $ 597.2
Retail operating income $ 69.6 $ 4.9 $ 74.5
Retail operating margin 11.7 % 0.8 % 12.5 %
Net income attributable to MKHL $ 160.9 $ 3.2 $ 164.1
Weighted average diluted ordinary shares outstanding 168,839,967 — 168,839,967
Diluted net income per ordinary share attributable to MKHL $ 0.95 $ 0.02 $ 0.97
Six Months Ended October 1, 2016
As Reported Impairment Charges Transaction Costs As Adjusted
Total revenue $ 2,076.1 $ — $ — $ 2,076.1
Operating expenses $ 845.4 $ (4.9 ) $ (11.3 ) $ 829.2
Operating expense as percentage of revenue 40.7 % (0.2 )% (0.6 )% 39.9 %
Total income from operations $ 390.6 $ 4.9 $ 11.3 $ 406.8
Total operating margin 18.8 % 0.2 % 0.6 % 19.6 %
Retail net sales $ 1,160.1 $ — $ — $ 1,160.1
Retail operating income $ 136.2 $ 4.9 $ 11.3 $ 152.4
Retail operating margin 11.7 % 0.4 % 1.0 % 13.1 %
Net income attributable to MKHL $ 308.0 $ 3.2 $ 11.3 $ 322.5
Weighted average diluted ordinary shares outstanding 172,726,859 — — 172,726,859
Diluted net income per ordinary share attributable to MKHL $ 1.78 $ 0.02 $ 0.07 $ 1.87

Michael Kors Holdings Limited

Christina Coronios, (201) 691-6133

[email protected]

or

ICR, Inc.

Jean Fontana, (203) 682-8200

[email protected]

or

Media:

ICR, Inc.

Alecia Pulman, (646) 277-1231

[email protected]

Source: Michael Kors Holdings Limited

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