Financial Roundup: Michael Kors Takes Steps With Jimmy Choo as Tapestry Does With Kate Spade, Primark Cites Multichannel Growth

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Jimmy Choo store

Michael Kors sees a $1 billion brand for Jimmy Choo, Tapestry integrating Kate Spade, and Primark grows in the U.K. and beyond.

Michael Kors Holdings

In a Nutshell: The company said it was making continued progress executing its Runway 2020 strategic plan focused on product innovation, brand engagement and customer experience. During the quarter, the company completed the purchase of Jimmy Choo, which it sees having the potential to reach $1 billion in global revenue. It also named the first Michael Kors brand ambassador, actress Yang Mi, one of the most influential trendsetters in China.

Sales: Total revenue increased 5.4% to $1.15 billion in the second quarter ended Sept. 30, compared to $1.09 billion a year earlier. Retail net sales rose 8 percent to $645 million, driven by 56 net new store openings in the last 12 months, as well as the increase in e-commerce sales in Europe and Asia. Wholesale net sales gained 2.5% to $463.6 million.

Earnings: Net income rose 26.1% to $202.9 million in the quarter compared to $160.9 million a year earlier. Gross profit increased 7.2% to $690.8 million, and was 60.2% as a percentage of total revenue.

CEO’s Take: John D. Idol, 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.”

[Read more about Michael Kors: Can Coach and Michael Kors Usher in the Rise of the American Fashion Conglomerate?]

Tapestry Inc.

In a Nutshell: Tapestry said it has seen good progress on the integration of Kate Spade into the Tapestry platform during the quarter and took significant actions to position the brand for long-term success. The former Coach Inc. began to implement its strategic initiatives, including the pull back on wholesale disposition and flash sales, while taking substantial steps to unlock cost synergies. Tapestry said it expects to achieve “run-rate synergies” of about $100 million to $115 million in fiscal 2019 versus its previous guidance of $50 million.

Sales: Net sales for the first quarter ended Sept. 30 increased 24 percent to $1.29 billion compared to sales of $1.04 billion in the prior year. The fiscal first quarter performance includes the contribution of Kate Spade for the period subsequent to the closing of the acquisition on July 11 through the end of the period. Net sales for Kate Spade totaled $269 million, reflecting, in part, the strategic pullback in wholesale disposition and online flash.

Net sales for the Coach division fell 3 percent to $924 million in the quarter from $950 million a year earlier. Net sales for Stuart Weitzman rose 10 percent to $96 million from $88 million in the prior-year period.

Earnings: Net income for the quarter was a loss of $18 million compared to positive net income of $117 million in the prior-year period. Gross profit in the quarter grew to $764 million from $714.7 million a year earlier, while gross margin was 59.3% compared to 68.9% in the prior year.

CEO’s Take: Victor Luis, CEO of Tapestry, Inc., said: “Our first quarter performance was in line with our expectations, reflecting the benefits of our diversified multi-brand model, notably the contribution of Kate Spade to our consolidated results and double-digit growth at Stuart Weitzman. While our Coach comparable store sales were impacted by both expected calendar shifts and inventory challenges, as well as the effects of the unanticipated natural disasters, we have returned to growth thus far in the second quarter and are well positioned for holiday. Importantly, we remain on track to achieve the annual guidance we set out for Tapestry in August.”

Primark

In a Nutshell: The expansion of Primark’s selling space continued a strong pace in the 2017 fiscal year. The company, a unit of Associated British Foods, said its determination to be the best value on the high street drove the decision not to pass on to customers the higher input costs arising from the pound’s weakness against the dollar. The gross impact of this on Primark’s margin was, to some extent, mitigated by the work of the buying and merchandising teams, and margin declined by less than expected at the beginning of the year to 10.4%. Primark said its website and social media are playing a more important role in the relationship with customers in driving awareness of its products and footfall in its stores. Primark will continue to expand its selling space across all its countries of operation with another strong program of new store openings scheduled for the coming year.

Sales: Revenue at Primark rose 19 percent to 7.05 billion pounds ($9.26 billion) in the year ended Sept. 16 compared to 5.95 billion pounds ($7.81 billion) in the prior year. Primark performed particularly well in the U.K., where sales were 10 percent ahead of last year. Sales in continental Europe were 16 percent of last year, reflecting extensive selling space expansion there. Primark opened three stores in the U.S. during the year and extended its Boston store by 20 percent. It will open its ninth U.S. store in Brooklyn, New York, in summer 2018.

Earnings: Adjusted operating profit increased 7 percent in the year to 735 million pounds ($965 million) from 689 million pounds ($904.5 million) last year.

CEO’s Take: George Weston, CEO, said, “Primark enjoys a loyal fashion following and the brand boasts over 10 million followers across its social media platforms. The Primark website aims to inspire, and enables its followers to keep up-to-date on all the latest products, create wish lists, receive styling advice and upload outfit posts to Primania. With most of next year’s first half U.K. purchases contracted at a weaker…dollar exchange rate than the same period last year, there will be an adverse effect on margin in the first half. However, the strengthening of the euro against the U.S. dollar in recent months will have a beneficial transaction effect on Primark’s eurozone margins, particularly in the second half of next year if these rates prevail. With a more typical level of markdowns and the absorption of some cost increases we expect full year margins to be similar to that achieved this year.”

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