Michael Kors Holdings (KORS)
F2Q 2013 Earnings Call
November 13, 2012 08:00 am ET
Executives
John Idol – Chairman & Chief Executive Officer
Joe Parsons – Executive Vice President, Chief Financial Officer & Chief Operating Officer
Christina Lack – Vice President & Treasurer
Analysts
Brian Tunick – JP Morgan
Kimberly Greenberger – Morgan Stanley
Randy Konik – Jefferies & Co.
Erinn Murphy – Piper Jaffray
Paul Lejuez – Nomura Holdings
Omar Saad – ISI Group
Joan Payson – Barclays
Blair Pearson – Robert W Baird
Oliver Chen – Citi
Corinna Freedman – Wedbush Securities
Presentation
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Michael Kors Holdings, Ltd. F2Q 2013 Conference Call. (Operator instructions.) As a reminder, this conference is being recorded. And now I’d like to turn the conference over to Ms. Christina Lack, Vice President and Treasurer. Please go ahead, ma’am.
Christina Lack
Good morning, and thank you for joining us for our F2Q earnings call. Presenting on today’s call are John Idol, Chairman and Chief Executive Officer who is calling in from Bangkok; and Joe Parsons, Chief Financial Officer and Chief Operating Officer.
Before we begin let me remind you that certain statements made on this call may constitute forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ from those that we expect. Those risks and uncertainties are described in today’s press release and in the company’s registration statement on Form F(1) which are available on the company’s website at www.michaelkors.com.
Investors should not assume that the statements made during the call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call. I will now turn the call over to Michael Kors Chairman and Chief Executive Officer, Mr. John Idol.
John Idol
Thank you, Christina. Good morning. Welcome to our F2Q 2013 earnings call. With me today is Joe Parsons, Chief Financial and Chief Operating Officer. We’ll begin the discussion with a brief overview of the quarter and share with you an update on our strategic growth plans. Joe will then provide a detailed review of our F2Q financial results. Additionally he will provide our outlook for F3Q 2013 and the full year.
We are extremely pleased with our F2Q performance across our retail, wholesale and licensing segments throughout North America, Europe, and Asia. Our results reflect the ongoing momentum of the Michael Kors brand and the successful execution of our key growth strategies. Michel Kors’ creative vision and design leadership provides us the ability to maintain a unique position in the marketplace as we continue to expand our presence as a global luxury lifestyle brand.
Our performance was driven by continued growth in comparable store sales, strong performance of our new stores, successful conversion to shop-in-shops in department stores, and advances in our international expansion strategy as we continued to build brand awareness. We have a talented management team, strong infrastructure and a healthy balance sheet that will enable us to successfully execute our strategic growth initiatives.
During the quarter we continued to advance on our six key growth initiatives. First, in North America our 45% comparable store sales increase represents the 26th quarter of consecutive growth in this region. Second, our retail expansion efforts continued in North America with ten new stores opening in the quarter. Third, we continued to convert North American wholesale department store doors into branded shop-in-shops. Fourth, our presence in Europe expanded with additional retail and wholesale door openings. Fifth, we continued to develop our business in Japan; and sixth, we continue to build a foundation for growth in other areas of the Far East through regional licenses.
I would now like to review a few financial highlights for our F2Q and then discuss our segments, our operations by region, and finally our expansion in the Far East through our regional licenses. Full revenue in the quarter grew 74% to $533 million, driven by strong performance in all segments of our luxury business. On a combined basis accessories, footwear, watches, jewelry, eyewear and related products comprised 79% of our product mix in F2Q. Our higher mix of accessories category is unique among American designer luxury brands.
Gross margin expanded 200 basis points to 59% for the quarter, driven primarily by lower markdowns as our luxury products continued to generate strong sell troughs. Our income from operations grew 126% to $158 million for F2Q compared to the same period last year. Last year’s F2Q results were adjusted for stock compensation expenses associated with our private placement.
Turning to our segment results, retail net sales grew 82% to $242 million and comparable store sales increased 45% globally. This comp strength illustrates our brand power, compelling merchandise assortments and an exceptional jet set store experience. Retail sales growth was also driven by 66 store openings since F2Q last year including 16 openings during F2Q. We ended the quarter with 2569 company-owned global retail stores including concessions.
Wholesale net sales increased 75% to $271 million in F2Q. Our product assortment continues to perform very well for our department store and specialty store customers, while our conversion to shop-in-shops in department stores provides a significant lift to sales.
In our accessories categories we saw similar or greater comparable store sales increases as compared to our retail stores. Both our footwear and women’s wear lines continued to show strong performance during the quarter and these categories are well positioned to shine this holiday season with our Star Power collection featuring luxury jewel tones, gorgeous fabrics, and gilded accessories.
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