The luxury market seems to be having a tough time as consumers try to cut their spending. With consumer spending slowing each month, luxury industry players might be facing problems in selling their products. However, this is not the case. Some of the prominent players, such as Michael Kors (KORS, Financial) and Coach (COH, Financial), have indeed posted attractive numbers for their recently reported quarter.
Both the companies managed to beat the Street’s expectations, sending its share price higher. However, the inside story is quite different for both the retailers. Let us dig deeper.
The numbers therein
Michael Kors reported a whopping 43% jump in its revenue, driven by higher demand for its designer bags and other accessories. On the other hand, Coach’s revenue dropped 7% to $1.14 billion, over last year’s quarter. This is mainly because of weakness in the North American market. Coach is witnessing declining sales in North America.
In fact, sales in North America dropped 16% over the prior year’s quarter as same-store sales also decreased in the region. Hence, the company plans to close 70 unprofitable stores to control costs. However, Michael Kors has a different story. Kors’ revenue from North America jumped 30% for the quarter as same store sales increased 18.7%. Kors’ growing wholesale segment as well as shop-in-shop conversions did the trick.
The international front
Coach did well on the international front, especially in China. Its revenue from the International market rose 7% and that from China grew 20%. Hence, China was the bright spot during the quarter, which helped the retailer beat the estimates. Further, Coach plans to open new stores in the region so that it can make the most of the growing demand in China.
Kors, too, found it easier to sell products to the international customers. Sales in Europe doubled during the quarter, growing 128% over last year, as customers merrily flocked into its stores. Also, comparable store sales grew more than 50%, which highlights the strength of this market. Thus, the retailer plans to expand its footprint in the overseas market.
Even revenue from Japan increased 89% for Kors, along with same-store sales growth of 49%. However, Coach witnessed a 6% drop in sales from Japan, mainly due to inventory-related problems.
Moving down
Even if we look at the bottom line of the two companies, Kors comes out to be a clear winner. Kors’ bottom line surged 50% over the previous year’s quarter, clocking in at $0.91 per share whereas Coach’s earnings fell 66%. Gross margin improved for Kors by 20 basis points whereas Coach registered a sharp decline in the same.
The share price has also moved in opposite directions for the two companies. Kors’ share price has increased 13% in the last one year whereas Coach’s stock price has fallen 30% during the same time.
However, Coach is working to improve its results by attracting more customers. It is providing discounts in North America so people get lured to its stores. Also, it has changed its store presentations and displays to make it more attractive.
Key takeaway
It is pretty obvious that Michael Kors has been an exemplary player in the industry. Customers are greatly attracted to its products, which leads to growth with each passing quarter. Also, its expansion into international markets and into the men's segment should help it grow further. Coach, on the other hand, is losing ground as it loses customers to the rival. Declining sales have been a major problem, especially in North America. But the company still makes efforts to grow revenue through discounts and expansion overseas. Also, its new marketing initiatives are something to look forward to. However, if luxury retail is what you are eying for, don’t look beyond Michael Kors.
