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Luxury Retail Having An Exquisite Q3 Thus Far

FOSL, RL | November 10, 2016

Luxury retailers are reporting better-than-expected quarterly earnings amid challenging retail landscape and tourism headwinds.

Earnings of Kate Spade & Co (NYSE: KATE) and Ralph Lauren Corp (NYSE: RL) have topped the Street, while Coach Inc (NYSE: COH)’s earnings came in line.

The Lux Sector

But, the sector is not out of the woods, as the slowing department-store traffic due to online competition and shift in spending patterns of millennials are still weighing on the sales.

Further, the shoppers’ appetite for high-end items has been curtailed by weak global economy, currency headwinds and geopolitical uncertainties such as terrorist attacks that affect tourism demand.

In this scenario, luxury retailers are trying vigorously to differentiate themselves from the competition. As part of that effort, they are cutting their product lines, diversifying in to other areas and resorting to aggressive cost controls.

Given slower traffic, Coach, Michael Kors Holdings Ltd (NYSE: KORS) and Kate Spade are reducing their sales to department stores. They are also cutting back on discounts and releasing products that entice shoppers to pay full price.

Meanwhile, some retailers are diversifying themselves to generate revenue from other streams. For instance, handbag maker Coach is aggressively marketing shoes via its Stuart Weitzman footwear brand. Michael Kors is betting on smartwatch and fitness tracker products made by Fossil Group Inc (NASDAQ: FOSL).

Those Already Reported

The following luxury retailers have announced their quarterly numbers:

Coach reported adjusted EPS of $0.45, which was in line with the expectations. Revenue was $1.04 billion and missed by $0.03 billion.
Kate Spade reported adjusted EPS of $0.13 on revenue of $317 million. This is higher by $0.04 EPS and $6.06 million from analysts’ estimates.
Ralph Lauren’s second quarter earnings of $1.90 topped consensus estimate of $1.71. Revenue came in at $1.8 billion, modestly lower than Street view of $1.82 billion.

Michael Kors Left To Report

Michael Kors is scheduled to announce its results on November 10 after market close. Analysts’ expect EPS of $0.88 on revenue of $1.09 billion for the September quarter. The consensus estimate implies a 13 percent drop in EPS and 4 percent decline in sales versus the same quarter last year.

However, Michael Kors’ earnings have beat consensus in the past four quarters. So, investors expect a repeat of earlier pattern.

Investors focus on the comparable store sales. In the past, the company’s omnichannel capabilities and expansion initiatives have grown comps. But, today investors would be monitoring this key retail metric to gauge how the comps are faring in this tough industry environment. They would also look for any pressure on margins from discounting.