Shares of Michael Kors dipped more than 4 percent in after-hours trading Thursday, after the handbag maker reported its first quarterly revenue decline since going public five years ago.
The fashion label reported fiscal second-quarter revenue of $1.09 billion, in line with a consensus estimate from Thomson Reuters. However, that decline marked a 3.7 percent contraction from the prior-year period.
Kors' decision to pull back the amount of its merchandise that's sold in department stores — part of its strategy to move away from aggressive price promotions — was the key contributor to its revenue decline. Revenue in the wholesale channel declined 22 percent in the Americas.
"We expect this trend will continue through the remainder of this year," CEO John Idol said. As a result, the company lowered its full-year revenue outlook to approximately $4.55 billion, from its previous expectation for $4.7 billion. Declines in the brand's wholesale business should moderate in the next fiscal year, Idol said.
Kors' management warned investors last quarter that come February it will no longer participate in department stores' broad-based friends and family sales, or accept coupons. In the meantime, it's pulling back the amount of product it distributes to those stores.
"We think that's the right thing to do for the health of the business," Idol said. He noted that the label's best-selling handbags this fall were its Mercer line, which is "not on promotion anywhere."
"It shows that the customer is absolutely willing to pay when they understand that things can't be put on promotion on a regular basis," Idol said.
In addition to pressure from discounting, Kors has been fighting against a sluggish overall handbag space and consumers' preference for smaller, lower-price bags.
Kors' 5.4 percent comparable sales decline came in slightly better than analysts' estimate of a 5.8 percent drop. Its earnings per share easily topped expectations of 88 cents a share, coming in at 95 cents a share. That compares with $1.01 a share one year ago.