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Greenberg: Cracks at Kors?

This originally appeared earlier today on Herb Greenberg's Reality Check.

SAN DIEGO (TheStreet) -- Michael Kors (KORS - Get Report) beat on the top and bottom lines, but this is worth noting: Gross margin was 59.9%. While that's in line with the company's guidance, which called for a "slightly higher" number than last year's 57.7%, it missed when compared with 60.1% a year earlier.

What's more, on its call this morning, the company guided to a slightly "lower-than-expected" margin for the current quarter.

More disconcerting, perhaps: Last quarter's meager margin performance, relative to expectations, came on top of 12.5% increase in revenue. In theory, at least, margin should have risen commensurately.

I understand the concept/argument that "everybody in retail missed on margin" in what arguably has been a horrible market for the sector.

But that, I believe, makes my point stronger. Everybody and Kors is missing on its margin guidance -- yet, with better-than-expected revenue, it's the outlier against its peers, customers and the malls themselves. So the implication is that, in order to keep its revenue up, Kors is discounting more than ever.

Lower margin guidance, as the company provided for this quarter, would seem to confirm that. Higher inventory, as was the case, doesn't help, and this suggests more discounting is on the way.

Reality: If this were a genuine beat on revenue and earnings the company, arguably, would have also beat on margins.

As one friend says, "Discounting is discounting. If you need to lower prices to move goods, then your product is less desirable than it was when discounting was not needed."

On its call this morning, Kors said that "for some time" it has been talking about a "normalization" in margins. It's actually been talking about a "normalization" in all of its growth. This is the first significant sign of that normalization. Red flag remains.

P.S. Per my original report on Reality Check, this doesn't even get into the question of how much the company is selling to its significant related party, Michael Kors Far East Holdings.

Follow @herbgreenberg

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at


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