Michael Kors Japan sales soar
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Michael Kors Japan sales continue to soar as rising US fashion player expands its global success.
Revenue in Japan for the last quarter rose 60.7 per cent on a constant currency basis.
While that figure was carved back to 36.1 per cent after the exchange rate was taken into account, it shows stellar growth in the Asian nation, which is now Michael Kors’ second largest market behind the US.
Globally, although still in positive territory, sales growth at Michael Kors continues to slow. Total revenue was up by 6.9 per cent during the quarter, a sequential worsening of the 7.3 per cent growth posted during the first quarter, and a long way down on the double digit increases recorded across the prior fiscal year.
But while some of this is due to currency fluctuations, according to Conlumino CEO Neil Saunders, this does not explain away all of the decline.
“Of particular concern are the same store sales numbers which were down by a sharp 8.5 per cent over the same period last year. While this represents a slight improvement on the 9.5 per cent dip recorded last quarter, it is still a dismal outcome and one which has diminished productivity and profitability. At total level retail sales remained in positive territory, saved only by the addition of some 116 new stores over the past year,” he said.
“All that said, while Michael Kors is now feeling some pressure on the bottom line, with net income falling by 6.8 per cent over last year, it remains in a much better financial position than a number of its luxury rivals. Indeed, its return on invested capital is over 10 percentage points higher than Coach and some 20 percentage points higher than Ralph Lauren,” noted Saunders.
“Indeed, its return on invested capital is over 10 percentage points higher than Coach and some 20 percentage points higher than Ralph Lauren,” noted Saunders.”
“Margins, while having weakened due to both exchange rates and discounting, remain comparatively robust. As such, Michael Kors’ capacity to weather the slowdown in demand for its products is, in our view, reasonable.”
But demonstrating it is capable of dealing with slowing demand does not mean Michael Kors wants to be in such a position, said Saunders.
“One of the current issues for the company is that its brand simply does not have the cachet that it once did and is, to some extent, suffering from over-exposure. Nowhere is this truer than in the North American market where the proliferation of the brand over recent years has diluted its value.
“Steps have been taken to remedy this, including lessening the reliance on traditional products like handbags by introducing more contemporary accessories like oversized wallets and cross body satchels. However, while these are helpful additions which balance out the range, they do not necessarily address the problem of ubiquity that the brand faces.”
While Michael Kors can look to overseas for growth, as it is successfully demonstrating in Japan, the problem is that with unfavorable exchange rates this translates into a less helpful boost than it once did.
“Europe is a case in point: here sales on a local currency basis rose by a fairly good 20.6 per cent. However, when exchange rates are factored in this growth is reduced to a paltry 2.3 per cent.
“Given these dynamics, it is difficult to see how Michael Kors can return to strong growth in the near future,” concluded Saunders.
Questions & Answers
Q.What is the true growth rate of Michael Kors' sales in Japan when currency fluctuations are considered?
What is the true growth rate of Michael Kors' sales in Japan when currency fluctuations are considered?
While sales in Japan initially showed a 60.7 per cent rise, this figure was reduced to 36.1 per cent after accounting for the exchange rate. This still represents stellar growth for the Asian nation.
Q.What is causing the decline in Michael Kors' overall sales growth, beyond currency issues?
What is causing the decline in Michael Kors' overall sales growth, beyond currency issues?
A significant concern is the sharp 8.5 per cent drop in same-store sales, which indicates diminished productivity and profitability. The addition of 116 new stores has primarily kept total retail sales positive.
Q.How is Michael Kors attempting to address its brand's perceived over-exposure and diluted value?
How is Michael Kors attempting to address its brand's perceived over-exposure and diluted value?
The company is lessening its reliance on traditional products like handbags. Instead, it is introducing more contemporary accessories, such as oversized wallets and cross-body satchels, to balance its range.
Q.Why is strong local currency growth in regions like Europe not translating into a significant global boost for Michael Kors?
Why is strong local currency growth in regions like Europe not translating into a significant global boost for Michael Kors?
Unfavourable exchange rates are reducing the impact of local currency growth. For example, Europe's 20.6 per cent local sales rise was cut to just 2.3 per cent when exchange rates were factored in.
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