Michael Kors, other luxury brands get a boost ahead of the holidays

Earnings


Michael Kors is just the latest beneficiary of an apparent lift in spending on luxury goods, thanks to a strong economy in the U.S. that has boosted consumer confidence and kept the unemployment rate at record lows.

The handbag retailer, which also owns Jimmy Choo, on Wednesday raised its earnings outlook for the full year, as it also reported first-quarter profit and revenue that exceeded Wall Street expectations. Management said on a call with analysts and investors that traffic is even up at department stores, as “the declines that we had seen previously are beginning to become mitigated.”

Michael Kors is now expecting to earn between $4.90 to $5 per share for the full year, an increase of 25 cents from its prior range. Its shares were trading up nearly 5 percent on the news, after reaching a new 52-week high of $70.99.

Michael Kors’ results follow similarly strong earnings reports from Louis Vuitton owner LVMH, which said late last month that Chinese consumers were still shopping from its house of brands despite increasing fear of tensions ballooning from a trade war with America. LVMH, like its peers, has a strong presence in Asia because the area makes up the biggest market for luxury retail.

“The threats [in China] … are there, but I don’t think they have materialized yet in any way,” LVMH CFO Jean-Jacques Guiony said on an earnings conference call.

Also reporting late last month was Kering, the parent company of brands like Gucci, Yves Saint Laurent and Balenciaga. Gucci’s margins by themselves hit a record high of 38.2 percent as of the end of June. The brand has benefited from revamping some of its flagship stores across the globe and working with fashion influencers who help market the products to younger shoppers online.

Echoing a similar message as LVMH, Kering management said: “At this stage, we’ve not seen any slowdown in demand from Chinese clients.” So far, luxury retailers would agree there is still ample uncertainty around any sort of U.S.-China trade dispute, but these companies haven’t started to see any impact on foot traffic or sales because of it.

Instead, the focus — at least in the U.S. — is on a spike in spending ahead of the all-important holiday season. Retail analysts continue to look to strong retail sales data during the summer months for how they are setting their expectations for holiday sales this year. And luxury brands are still expected to draw shoppers in with new products and celebrity collaborations.

“Our data show an elevated level of spending on luxury products thanks to tax cuts and bonuses, which have boosted consumer finances,” GlobalData Retail Managing Director Neil Saunders said Wednesday in an email to clients. “Michael Kors has been a beneficiary of this, especially in categories like accessories, footwear, and women’s outerwear.”

Analysts and investors will be watching department store chains’ earnings reports — which are set to kick off next week, — closely, to see how inventory sits ahead of the fall and winter seasons. Michael Kors and Coach-owner Tapestry, among other luxury brands, have been working to trim their inventories, hoping to have less unsold product left over each year. In turn, department stores are looking cleaner.

“Even branded apparel companies have noted in their most recent quarterly results that they are experiencing higher [sales] at wholesale as a result of clean inventory and appealing product assortments, while healthy domestic consumer demand is supporting strength at retail,” Telsey Advisory Group analyst Dana Telsey said in a note to clients earlier this week.

Michael Kors shares have climbed more than 53 percent from a year ago, bringing the retailer’s market capitalization to $10.4 billion.



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