Michael Kors Holdings Ltd. has maintained its earnings streak for the fifth consecutive quarter. The luxury lifestyle retailer’s first-quarter fiscal 2017 adjusted earnings per share of 88 cents easily surpassed the Zacks Consensus Estimate of 74 cents and also increased 1.1% year over year.

On the other hand, total revenue of 987.9 million came in above the Zacks Consensus Estimate of $952.4 million and also inched up 0.2% year over year. The upside in the top line was primarily driven by an increase in retail net sales in Europe and Asia.

Despite beating both earnings and revenues, the company’s shares declined more than 5% in pre-market trading session stemmed by dismal outlook for the fiscal second quarter. 

Further, gross margin plunged 20 basis points (bps) to 59.2% with forex headwinds resulting in a 130 bps decline. Operating margin contracted 630 bps year over year to 18.9% owing to a rise in operating expenses.

Segment Performance

The Retail segment generated net sales of $562.9 million, up 7.6% year over year. The upside was mainly due to 221 new stores openings over the past twelve months. Operating profit fell to $67.7 million in comparison to the prior-year figure of $120.9 million. Comparable store sales declined 7.4% in the reported quarter. The company had earlier projected comps to decrease in mid single digits.

At the Wholesale segment, revenues deteriorated 7% to $394.4 million, while operating profit fell 1.2% to $105 million.

Licensing segment revenues tumbled 20.9% to $30.6 million. Operating profit plummeted 28.5% to $15.3 million.

Regional Performance

Revenues in the Americas decreased 5% year over year to $690.8 million, while revenues in Europe rose 3.3% from the year-ago quarter to $224 million. Lastly, revenues in Asia soared 74.5% year over year to $73.1 million.

Other Financial Data

As of Jul 2, 2016, Michael Kors had cash and cash equivalents of $337.1 million and shareholders’ equity of $1,757.7 million.

At the end of the fiscal first quarter, Michael Kors operated 881 stores worldwide, which included licensed locations.

Michael Kors repurchased 8,025,749 shares for approximately $400 million. As of Jul 2, 2016, the company has nearly $600 million worth of shares remaining under the current repurchase authorization.

Guidance

Management expects fiscal 2017 revenues to be flat with the previous year. Further, comps are likely to decrease in mid single digits in comparison to the previous guidance of a decline in the low single digits. Also,  fiscal 2017 earnings are estimated in the range of $4.56–$4.64 per share. The Zacks Consensus Estimate is currently pegged at $4.59 per share. The company expects operating margin to be 21.5%.

Further, management anticipates second-quarter fiscal 2017 revenues in the range of $1.07–$1.085 billion. Comps are projected to fall in the mid single digits.

Earnings are projected in the range of 84–88 cents per share for the fiscal first quarter. The Zacks Consensus Estimate, which is pegged at $1.06 per share, might witness downward revision in the coming days.

Zacks Rank and Key Picks

Michael Kors currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) , The Children's Place, Inc. (PLCE Quick QuotePLCE - Free Report) and Nordstrom Inc. (JWN Quick QuoteJWN - Free Report) . All these stocks hold a Zacks Rank #2 (Buy).

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