Kors Earnings: Charging More for Bags Seems to Be Working

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Investors like the look of the transformation going on at Michael Kors.

Shares are up 13.6% Monday after the company reported earnings per share of $1.33 on revenue of $1.1 billion, both of which exceeded analysts’ expectations. Kors’ margins, a measure of profitability, rose during the quarter, which the company attributed to both cost cuts and a higher mix of pricier bags.

CEO John Idol called out the impact of backpacks, which have become a popular fashion item. Backpacks are one of the company’s fastest growing areas, and they tend to have relatively high price points.

Management also spoke about how the company has been pulling back on big discounts in an effort to revive the brand’s high-end image. Kors had fewer promotional days during the quarter and plans to limit discounts in the current quarter, as well. That might be painful in the short-term, since the current quarter will be compared to a very promotional period a year ago, but the long-term goal is for Kors to drive higher prices per unit sold, a trend that’s already started to play out.

Management raised its revenue forecast for the full year, which ends in March.

“We expect the improvement to continue in the coming quarters as average-unit revenue gains continue and the reduction in promos continues to drive higher profitability,” Jefferies analyst Randal Konik writes. He sees shares hitting $62, marking 15% upside after Monday’s

 

 

 

 

 

 

 

 

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