Michael Kors' profit forecast disappoints as promotions weigh

[February 07, 2017]  (Reuters) - Michael Kors Holdings Ltd <KORS.N> reported a bigger-than-expected drop in comparable sales for the holiday quarter and forecast current-quarter profit well below estimates as the company continues to offer discounts on its handbags.

The company's shares were down 7.3 percent in premarket trading on Tuesday.

Revenue in the Americas region fell 7.4 percent, while Europe sales were down 7 percent.

The company said weakness in the two regions, which together account for nearly all of Michael Kors' sales, would continue through spring, partly due to lower traffic in shopping malls and a cutback in promotions in North America.

Kors, like rival Coach Inc <COH.N>, is trying to regain its brand value by reducing supplies to department stores, which have been heavily discounting its products to drive traffic.

"While the reduction in wholesale shipments was supposed to aid consolidated gross margin, 3Q results were disappointing," Mizuho analyst Betty Chen said, noting that operating expenses rose during the quarter.

Chen had expected gross margin of 60.5 percent, while Kors reported 59.6 percent.

The company said it plans to reduce wholesale shipments in the current quarter and expects comparable sales to decrease in the low-teens on a percentage basis.

Michael Kors logo is seen in a shop in downtown Lisbon, Portugal, November 16, 2016. REUTERS/Rafael Marchante

Michael Kors forecast current-quarter profit of 68 cents-72 cents per share on revenue of $1.04 billion-$1.06 billion. Analysts were expecting earnings of 93 cents per share and revenue of $1.11 billion.

Sales at stores open for more than a year fell 6.9 percent in the third quarter ended Dec. 31, falling for the seventh time in eight quarters. Analysts had expected a 4.9 percent decline, according to research firm Consensus Metrix.

Net income attributable to the company fell to $271.3 million, or $1.64 per share, from $294.6 million, or $1.59 per share, a year earlier.

Total revenue fell 3.2 percent to $1.35 billion.

Analysts on average had expected earnings of $1.63 per share on revenue of $1.36 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty and Shounak Dasgupta)

[© 2017 Thomson Reuters. All rights reserved.]

Copyright 2017 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.