Another retailer has decided to trim its brick-and-mortar fleet.
Michael Kors said Wednesday it will close 100 to 125 full-price stores over the next two years. The company had 827 retail locations as of April 1.
The closures are intended to improve profitability, Michael Kors said. The retailer anticipates ongoing annual savings of $60 million as a result of this plan but will record a $125 million charge.
Michael Kors, among many of its peers in the retail space, has been hurt by lagging sales and dwindling foot traffic as more shoppers choose to ring up purchases online. Further, the retailer has had a difficult time marketing its products at full price.
Shares of the stock slid more than 9 percent during Wednesday morning after the luxury retailer said its fourth-quarter earnings had swung to a loss and it planned to trim its store fleet.
Michael Kors posted a net loss of $26.8 million, or 17 cents per share, in the latest quarter, compared with net income of $177 million, or 98 cents per share, one year ago.
Management said earnings were hurt by $193.8 million in noncash impairment charges that were related to some under-performing stores. Excluding those one-time charges, the company earned 73 cents a share, beating a Thomson Reuters analyst consensus estimate by 3 cents.
“Fiscal 2017 was a challenging year, as we continued to operate in a difficult retail environment with elevated promotional levels,” CEO John Idol said in a statement. “In addition, our product and store experience did not sufficiently engage and excite consumers.”
Meanwhile, total revenue fell 11.2 percent to $1.06 billion, from $1.20 billion a year ago, Michael Kors reported. Analysts were expecting sales of $1.05 billion, according to a Thomson Reuters survey.
Michael Kors said it now anticipates first-quarter sales of $910 million to $930 million, along with a same-store sales decline in the high-single digit range.
A significant comparable sales decline of 14.1 percent for the latest period was bigger than the 13 percent drop forecast by a FactSet survey.
“Michael Kors’ precipitous drop in sales does very little to reassure that the company’s nascent recovery program is on track,” GlobalData Retail Managing Editor Neil Saunders wrote in an email. “Indeed, if anything it raises a question mark over whether management can win back [customers] as it tries to reinvigorate the brand.”
Michael Kors is still carrying baggage from its past, Saunders went on. “Customers alienated by its previous overexpansion and discounting have been given very few reasons to take a fresh look at the brand.”
“Looking ahead, it is clear that Michael Kors has further to fall.”
One analyst, though, views Michael Kors’ decision to close some of its under-performing locations as “taking the knife out.”
“The first move was reducing wholesale exposure and now it’s the announcement of 100 stores over the next 1-2 years,” Jefferies analyst Randal Konik wrote in an email. “These moves are an important step in rightsizing points of distribution, which will improve [long term] brand equity, [capital return], and margin structure.”
These moves further show the retailer pushing a “reset” button, Konik added.
KORS 1-year performance
As of Tuesday’s market close, shares of Michael Kors have tumbled about 15 percent for both the year-to-date period and over the past 12 months.
“Fiscal 2018 will be a transition year,” CEO Idol told analysts and investors on Wednesday’s earnings conference call.
The company plans to hold an investor day on June 9 at its New York headquarters, where management will update attendees on Michael Kors’ 2020 strategic growth plan.
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