Michael Kors' weak forecast suggests turnaround to take longer

By Sruthi Ramakrishnan

(Reuters) - Michael Kors Holdings Ltd (NYSE: KORS) forecast current-quarter profit below estimates, raising concerns that the company's efforts to reinvigorate its brand was taking much longer than expected, sending the handbag maker's shares down 15 percent.

The company, which also sells apparel, watches and shoes, reported a bigger-than-expected drop in comparable sales for the holiday quarter - their sixth fall in the past seven quarters.

Kors, once the hottest name in the "affordable luxury" sector, posted double-digit sales growth until 2014, helped by the runaway success of its $300 bags.

In its bid to sustain sales growth, the company rapidly expanded in North America, a move that made its handbags too commonplace for fashion-conscious women.

To turn its business around, Kors is expanding into dresses and menswear, investing in its online business, and reducing supplies to department stores, which have been discounting heavily to bring back shoppers.

"As much as we believe that Michael Kors is headed in the right direction ... we maintain our view that it has much more work to do in reconnecting with customers who have been alienated by the overexpansion of the brand," said Neil Saunders, managing director of research firm GlobalData Retail.

The company said on Tuesday it would cut back promotions in North America, starting this month, to boost average retail prices.

Michael Kors, however, said it expected weakness in North America and Europe to continue, partly due to fewer shoppers visiting malls.

The company forecast fourth-quarter profit of 68 cents-72 cents per share on revenue of $1.04 billion-$1.06 billion. Analysts were expecting earnings of 93 cents per share and revenue of $1.11 billion, according to Thomson Reuters I/B/E/S.

The company's shares fell to $34.92 on Tuesday, making the stock the biggest percentage loser on the New York Stock Exchange.

Michael Kors said average selling prices in the third quarter were hurt by a highly promotional environment as well as the continued popularity of cheaper cross-body bags and small leather goods in the third quarter.

Michael Kors' third-quarter profit of $1.64 per share beat the average analyst estimate by 1 cent, according to Thomson Reuters I/B/E/S.

Quarterly revenue in the Americas region fell 7.4 percent, while Europe sales were down 7 percent.

Sales at stores open for more than a year fell 6.9 percent in the third quarter ended Dec. 31, reflecting a mid single-digit decrease in North America and a midteens decline in Europe.

In contrast, bigger rival Coach Inc's (NYSE: COH) North American same-store stores sales rose 3 percent, their third consecutive quarterly rise.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty and Sayantani Ghosh)

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