Earnings Preview: Michael Kors & Ralph Lauren

Michael Kors Holdings Ltd.

The company may have given hope to market watchers who had been down on the brand — and the handbag category overall — when it pulled off a better-than-expected Q1, reported on Aug. 6.

Following the release, Kors’ share price climbed by double-digits due to a Wall Street beat and revenue growth of 7.3 percent, to $986 million.

Michael Kors CEO John Idol said the better-than-expected results were driven by stronger performance in both retail and wholesale segments. The increase in retail net sales was attributable to new stores and accelerated growth in the North American digital flagships, which experienced a 102 percent year-over-year increase, Idol noted.

Looking ahead to its Nov. 4 Q2 earnings release, however, some analysts remain cautious.

We are lowering our price target to $37 from $45, as we believe the brand continues to struggle to regain the allure it once had,” wrote Canaccord Genuity Inc. analyst Camilo Lyon. “When Kors reports fiscal Q2 results, we are anticipating little in the way of evidence of improved momentum; we believe comps remained in the negative high-single-digit range as pressures from weak North America traffic trends, a trend shift to smaller handbags (ASP pressure) and FX headwinds did not abate.”

Ralph Lauren Corp.

Analysts are anticipating that some of the sluggish retail trends — evidenced in the earnings reports of other footwear and apparel companies — are indicative of what’s to come when Ralph Lauren reports on Nov. 5.

We are lowering our 2Q16 and FY16 EPS estimates to $1.73 and $6.85, from $1.75 and $6.90, respectively, primarily to reflect our expectation that department store sales have remained (and will continue to be) sluggish, and that tourism continues to be a major headwind to U.S. sales in both the wholesale and retail channels,” Nomura Securities Inc. analyst Robert Drbul wrote. “Due to our belief that upwards annual earnings revisions are still likely several quarters away, we are reducing our target price (to $135 from $145) and multiple.”

UBS Investment Bank analyst Michael Binetti and Cowen & Co. analyst John Kernan shared Drbul’s concerns about macro trends. Kernan also noted that warmer-than-expected weather could play a role.

When Ralph Lauren last reported, its revenues declined by 5 percent, to $1.6 billion, due mostly to foreign-currency headwinds. Double-digit international growth, new-store openings and e-commerce expansion buffered those losses.

The firm — which recently named former Old Navy President Stefan Larsson its CEO — is in the midst of a restructuring that it hopes will deliver $100 million in annual expense savings.

Michael Kors and Ralph Lauren aren’t the only big names reporting this week. Click here for what to expect from Adidas, Crocs and Kate Spade.

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