The shares of upscale handbag makers Michael Kors (KORS) and Coach (COH) are falling after their competitor, Kate Spade (KATE) , provided weaker than expected full-year guidance and made some cautious comments. Meanwhile, in a note issued earlier today, research firm Jefferies recommended buying Michael Kors and Coach ahead of their own upcoming quarterly reports.
KATE SPADE RESULTS AND COMMENTS: Kate Spade reported significantly higher than expected profits from continuing operations for the second quarter and its Q2 revenue came in slightly above expectations. However, it provided fiscal 2016 earnings per share guidance of 63c-70c, versus the consensus outlook of 78c. Moreover, its full-year revenue guidance came in at $1.37B-$1.4B, versus analysts consensus estimate of $1.41B. The company said that its Q2 results were hurt by "the retail landscape and continuing tourist headwinds." Specifically, outlet retail channels have become more promotional, while outlets in tourist-dependent locations have been attracting less favorable consumers, Kate Spade explained. However, the accessories and apparel maker said that it expects its performance to improve in the second half of this year and beyond, while it remains confident that it can meet its long-term annual retail revenue target of $4B.
ANALYST PREVIEW: In a note issued earlier today, Jefferies analyst Randal Konik recommended buying Coach and Michael Kors ahead of their results. Coach, which is slated to report its Q4 results on August 9, should report positive Q4 comparative sales, and its turnaround remains on-track, Konik stated. Moreover, the company's margins probably reached a positive turning point last quarter, driven by "revenue growth, reduced promotions and strong cost controls," the analyst forecast. Additionally, Coach is benefiting from stronger demand as its brand has been strengthened by changes made by its new creative leader, Stuart Vevers, according to Konik. Finally, the company's management was "upbeat" during Konik's meeting with them in early June, the analyst stated. As for Michael Kors, the company's Q1 results will probably be "muted," featuring a 5% comp decline and falling margins, Konik predicted. However, the analyst thinks that the company can rebound in the second half of fiscal 2017, as it benefits from improvements to its e-commerce system, new product initiatives, and its launch of wearable products. The analyst kept Buy ratings on Coach and Michael Kors. He raised his price target on Coach to $53 from $51 and kept a $75 price target on Michael Kors.
PRICE ACTION: In morning trading, Michael Kors shares sank 4% to $48.41 and Coach lost nearly 1% to $41.34, while Kate Spade tumbled over 20% to $16 per share.