Michael Kors to Close Up to 125 Stores as Sales Collapse

Store Closed

Michael Kors Holdings Ltd (NYSE:KORS)—the luxury brand known for its handbags, footwear, jewelry, and clothing—announced it will close up to 125 stores due to plunging sales. Management said the company’s restructuring will help it improve profitability. The retailer expects the store closings to result in a $125.0-million expense, but they will help the company save $60.0 million on an annual basis.

But the company has a long way to go to make that happen. The company posted a net loss of $26.8 million, or $0.17 per share, in the fourth quarter of fiscal 2016, which ended April 1, 2017. In that quarter, Michael Kors reported net income of $177.0 million, or $0.98 per share. Fourth-quarter revenue plunged 11.2% to $1.06 billion, from $1.2 billion a year ago.

“Fiscal 2017 was a challenging year, as we continued to operate in a difficult retail environment with elevated promotional levels,” said CEO John Idol. “In addition, our product and store experience did not sufficiently engage and excite consumers.”

Investors did not take kindly to the news that Michael Kors had swung to a net loss and was going to shutter up to 125 stores to stop the bleeding.

Shares in Michael Kors fell more than nine percent in the hours after it announced its fourth-quarter and full-year results on May 31, 2017. Weak projections for the first quarter also show that Michael Kors has further to fall.

In an effort to excite and engage with investors, Michael Kors said the store closings will take place over the next two years, and will leave the company with around 725 stores. The company had 827 full-price or outlet stores and 133 licensed stores when its fiscal year ended on April 1, 2017.

This is an abrupt change for Michael Kors. Over the last two years, the company opened 300 new locations. But that rapid expansion has hurt the company’s brand and its bottom line.

The company will reduce its exposure to U.S. department stores, which are struggling with lower sales as more and more consumers turn to online shopping. It’s a tough economic environment, and it has been difficult for the retailer to market its products at full price.

While many see the store closings as a sign that the company is hitting the reset button, the writing has been on the wall for at least a year now and, in some ways, was giving the investing community a heads up about store closings.

In 2016, Michael Kors announced it would no longer accept coupons for its merchandise sold in department stores, would no longer participate in department store “friends and family sales,” and was going to reduce the amount of merchandise it ships to department stores. Finally, CEO John idol said the company would be pulling out of U.S malls starting in 2017.

Sources:

Michael Kors Holdings Limited Announces Fourth Quarter And Annual Fiscal 2017 Results,” Michael Kors Holdings Ltd, May 31, 2017.)

Michael Kors is fed up with department stores damaging its brand,” CNBC, August 10, 2016.

 

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