Michael Kors plans store closures as loss widens

In an effort to dig out of its sales funk and rebuild its brand, Michael Kors plans to shutter more than 100 full-price stores.



The brand, which built its reputation on lines of high-end apparel, handbags, shoes and fashion accessories, continues to take a hit in an increasingly difficult retail environment — one where customers are shopping online and spending less on apparel. The retailer is also "challenged by elevated promotional levels, and a product and store experience [that] did not sufficiently engage and excite consumers,” said John Idol, the company’s chairman and CEO.



In effort to turn the tide, the retailer announced that it will close between 100 and 125 of its full-price retail stores over the next two years. The company operated 827 stores as of the end of the fiscal first quarter.



The company will incur approximately $100 million - $125 million of one-time costs associated with store closures. Despite the penalty, Michael Kors expects the shuttered locations to improve the profitability of its store fleet. Meanwhile, the closed stores and the lower depreciation and amortization associated with these impairment charges are expected to provide an ongoing annual savings of $60 million, according to the company.



For the quarter ended April 1, the company’s revenue decreased 11.2% to $1.06 billion from $1.20 billion in the fourth quarter of fiscal 2016. This also just missed analyst expectations of $1.05 billion, according to a Thomson Reuters survey.



Meanwhile, Michael Kors posted a net loss of $26.8 million, or 17 cents per share, for the latest quarter, compared with net income of $177 million, or 98 cents per share, for the same period a year ago. There was a similar story among comparable sales, which decreased 14.1%. During the fourth quarter, the retailer also recorded impairment charges of $193.8 million primarily related to underperforming lifestyle stores.



For the fiscal year, total revenue dropped 4.6% to $4.49 billion, from $4.71 billion in fiscal 2016. While retail net sales increased 7.4% to $2.57 billion, comparable sales decreased 8.3%.



Looking ahead to the first quarter of fiscal 2018, the retailer expects total revenue to be between $910 million and $930 million, and a comparable sales decrease in the high-single digit range. For the full fiscal year, Michael Kors expects total revenue to be approximately $4.25 billion, and comparable sales will decrease in the high-single digit range. Diluted earnings per share are expected to be in the range of $3.57 - $3.67.



“Looking ahead, as we expand the fashion innovation in our accessories assortments, right-size our store fleet and elevate our store experience, fiscal 2018 will be a transition year in which we establish a new baseline before returning to long-term growth,” Idol reported.