Slowdown in Michael Kors watches spooks investors

Michael Kors saw almost $3 billion wiped off the value of its shares on Wednesday as markets reacted to news that sales at existing stores world-wide had fallen by 5.8%.

Watch sales in North America were singled out by John Idol, the company’s CEO, as particularly disappointing, although Fossil UK, which sells Michael Kors watches in Britain, says watch sales are still growing strongly.

It is the first time that Michael Kors has reported a decline in sales, leading to a slump of 24% in its share price on Wall Street.

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Forward guidance also spooked investors, with the company anticipating full year sales of $4.7 billion to $4.8 billion. Most analysts had expected revenue north of $5 billion. The share price today stands at $46, less than half its peak one year ago of $97, which has prompted the company to start buying back shares that it insists are under-valued by investors.

Once new store openings were included, Michael Kors quarterly revenue grew by 18% to $1.1 billion. Profits rose by 13% to $183 million from $161 million a year earlier.

Mr. Idol said the company saw a significant softening of its watch business, particularly in North America where tourists are spending less because of the strength of the US dollar.

He said the company was seeing a shift in buying patterns away from watches and towards Michael Kors jewellery, but that the amount spent per customer on jewellery was typically less than half of what would have been expected from watch purchases.

The brand says it plans to freshen up its line up of watches with new textures and styles ahead of the spring trade-buying season next year.

Zoe Uhrmacher, head of brand for Michael Kors at Fossil UK, told WatchPro that the brand was still a star performer in this market. “It is difficult to maintain the sort of growth rates we have seen over recent years, but we are still seeing year-on-year growth, and we are still gaining market share,” she said. “It has also been a great year for Michael Kors jewellery,” she added.

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