Michael Kors Earnings Call Analysis: The Story Behind the Drop

Michael Kors (KORS) reported Q2 2019 earnings on 11/07 and the stock price dropped ~14.6%. It's easy to spot that KORS missed its revenue estimates, but we used Amenity Viewer to unpack the story behind the company’s operating performance to quickly identify 3 insights that could have easily been missed by analysts.

KORS: Unpacking the Revenue Miss

1. KORS Took Hits From Multiple Angles Which was Reflected in its Amenity Score Dropping 61%

  • The company had been steadily gaining traction over the past year, but its performance was overturned by the shaky results over the past quarter. The decline in comparable store sales for Michael Kors was driven by inventory troubles and higher markdowns:

"...decline in retail gross margin of 150 basis points, driven by higher markdowns on our end of season merchandise..."

"Comparable store sales experienced a modest decline in the quarter. This was primarily driven by low double-digit declines in inventory levels and higher markdowns on certain seasonal fashion products"

  • The wholesales business in Europe was another pain point for KORS:

"Europe revenue was lower, reflecting our strategy in the region to reduce inventories"

"In Europe, our sales declined double-digits for the quarter, in lines with our plan to decrease inventory"

2. The Real Story Behind All the Words: Channel Management Issues

  • Next, we utilized Viewer's ability to pull out meaningful information from volumes of text to quickly analyze management's long-winded answers to analyst questions:

"The indices in markdowns that we saw, unfortunately,they end up being a greater percentage and has impacted the retail gross margin"

"...we drove the inventories a little too low in the company."

"We see continued strength in the China marketplace..."

"We have some extraordinary plans for Versace"

3. Higher Earnings Guidance Didn't Mitigate the Cost-Price Drag

  • The Key Drivers provide a summarized view of the underlying factors behind a company's performance. The markdowns and higher costs from the Jimmy Choo business posed as a hurdle.

"Total company operating expense increased $95
million, including $92 million from Jimmy Choo

"As a percentage of revenue, operating expense increased 420 basis points to 43.7%"

"The indices in markdowns that we saw, unfortunately, they end up being a greater percentage and has impacted the retail gross margin because owe did not have enough logo product"

Join the Amenity Viewer Beta Program today to analyze earnings call transcriptions and enable you to spot outliers, identify critical insights, and understand key drivers.

This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

Copyright ©2019. All rights reserved.

November 27, 2019

Quarter in Review: Retail Therapy, Target & TJX

With the peak of earnings season and Black Friday in the rear view mirror, we spent Cyber Monday using Amenity's suite of NLP tools to check on major retailers that have held earnings calls in the fourth calendar quarter of 2019. We present an analysis of the Retailing GICS Industry Group and confirm a significant bifurcation between small and large retail operations. We then offer deeper context for two widely followed retailers: Target Corporation (TGT) and The TJX Companies, Inc. (TJX). Our models uncovered evidence to suggest there may be tariff risks emerging that have not yet been fully digested by markets.
November 26, 2019

Deception Spotlight: Smucker Jammed on Revenue Growth

We highlight The J. M. Smucker Company (SJM) following the company’s 2Q20 earnings call on 22 November 2019. Despite beating EPS estimates, the underlying story remains unsettling. Focusing more on the longer-term, our analysis finds questions about revenue have triggered deceptive answers by management in earnings calls at an increasing rate, which may further erode confidence given the ongoing calls for top-line improvements. This sort of evidence may provide fodder for bear theses and be a honeypot for activists. We narrate the context for our concern and detail deceptive language detected by Amenity’s NLP models.
November 21, 2019

Amenity Portfolio Analytics: Warren Buffett's Portfolio at Berkshire Hathaway

We pilot a method for using Amenity's NLP solutions to analyze earnings calls for multiple companies and scoring their impact on portfolios of diverse, unevenly distributed holdings. We analyze Warren Buffett's holdings at Berkshire Hathaway as a test case and detail the Oracle of Omaha's Amenity Portfolio Score with attribution at the position level. We find that Berkshire Hathaway's portfolio score is significantly greater than the average company score in our universe (>12k companies, >10 years), which is a function of Buffett favoring companies with positive Amenity Scores.
October 30, 2019

Ahead of the Fed: S&P 500 Bank Barometer

We’re back on Fed Watch! With the Federal Reserve’s Open Market Committee expected to announce another rate decision at 2pm on 30 October 2019, markets have baked in more than a 90% likelihood of a 25 basis point cut. We've kept a close eye on regional and diversified banks as earnings season progresses to gauge how lower rates are impacting management commentary as well as their business and economic implications. We share our analysis context ahead of the Fed’s announcement and press conference.

Stay Informed: Join Our Newsletter

Keep up to date with our analyses and how we're making changes.