Michael Kors shares pop on earnings beat

Key Points
  • Michael Kors' earnings and revenue for the third quarter of fiscal 2018 topped analysts' expectations.
  • The luxury retailer, which also owns Jimmy Choo, raised its outlook for the full year.
  • Michael Kors has been trimming back promotions on merchandise to revive sales.
A pedestrian passes by a Michael Kors retail store in New York.
Scott Mlyn | CNBC

Michael Kors on Wednesday reported earnings and revenue that topped analysts' expectations, as more shoppers purchased high-end handbags and shoes sporting both the Michael Kors and Jimmy Choo labels.

The luxury retailer's shares jumped more than 9 percent in premarket trade on the news. The earnings report followed another successful showing by Coach parent Tapestry one day prior.

Michael Kors' sales rose 6.5 percent during the third quarter of fiscal 2018 to $1.44 billion, which included a $114.7 million contribution from Jimmy Choo (the company owned this banner for just two months during the quarter). Analysts were expecting revenue of $1.38 billion, according to a Thomson Reuters survey.

Net income attributable to Michael Kors was $219.4 million, or $1.42 per share, compared with $271.3 million, or $1.64 a share, a year ago. Excluding one-time items, the company earned $1.77 per share, topping analysts' forecast for $1.29 a share.

"Our innovative fashion luxury product offerings for the holiday season created excitement among consumers," CEO John Idol said in a statement.

Overall same-store sales dropped 3.2 percent during the latest period, while Wall Street was calling for a decline of 6.8 percent (based on Thomson Reuters estimates). Idol said performance in the U.S. and Europe was better than the company had anticipated during the holidays.

Management said the company is forging ahead with its "Runway 2020" plan, which consists of expanding in women's footwear and ready-to-wear items, and keeping products fresh, among other initiatives.

Looking to fiscal 2018, Michael Kors expects annual revenue to reach about $4.66 billion, including between $225 million and $230 million of sales from Jimmy Choo. Same-store sales are expected to decline in the mid-single digits.

Michael Kors shares have skyrocketed nearly 60 percent from a year ago.

The company has been trimming back promotions on merchandise to revive sales, and those efforts are paying off.

"The company is stronger now than it was a couple of years ago," Neil Saunders of GlobalData Retail said. "We believe management has addressed many of the weaknesses that previously plagued the company."

Meanwhile, new tax legislation is likely to put even more money back into consumers' pockets, making conditions favorable for many luxury brands such as Michael Kors, LVMH (the parent company of Louis Vuitton), Tiffany and Tapestry.