3 Questions Facing Michael Kors Ahead Of Q2 Earnings

Michael Kors Holdings Ltd KORS is set to report its second quarter financial results on November 10 and Deutsche Bank laid out three questions related to tourism headwind, Europe and technology ahead of the Thursday’s print.

Deutsche Bank expects EPS of $0.86 on revenue of $1.085 billion versus consensus estimates of $0.88 EPS on revenue of $1.09 billion. The brokerage expects 6 percent drop in comp, compared to consensus’ 5.7 percent decline.

The company guided EPS of $0.84-$0.88, revenue of $1.070-$1.085 billion and comp to decrease in the mid-single digit for the second quarter.

“To the upside, we could see more positive than expected revenue trends and expectations in Michael Kors Access products (and men’s), through both Kors’ retail and wholesale channel,” analyst Dave Weiner wrote in a note.

“To the downside, we believe core categories at Kors remain weak and notably, trends in Japan are likely under pressure as strength cycles, including from Chinese tourism,” Weiner continued.

In addition, the analyst said the excessive promotions by the retailer may weigh on near-term gross margin.

On the call, Weiner will ask whether there is any improvement in tourism headwind on comps as competitor results and commentary on tourism have been mixed. Coach Inc COH reported a 4 percent store comp growth and is positive on business to international tourists in North America. On the other hand, Kate Spade & Co KATE reported flat store comps and commented that tourism pressure intensified.

The analyst would also look for any comments on the situation in Europe, whether the company recorded double-digit comp decline last quarter due to Brexit and terrorist attacks in France. However, the analyst said the consumer demand has rebounded and the company itself noted in August that trends had recovered somewhat quarter-to-date.

Finally, Weiner would focus on the sales of the company’s newly-launched smartwatches and activity trackers under the Access brand.

Moreover, Weiner maintained his Buy rating, with a price target of $56, saying "we see payoff for patient investors.”