Michael Kors and Coty shares hit by weak European sales

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Michael Kors has been on a shopping spree, buying up Versace and Jimmy Choo, in a bid for growth

Shares in Michael Kors plunged on Wednesday following weaker-than-expected sales at its namesake brand.

Sales at Michael Kors stores open for at least 12 months fell 2.1%, while licensing revenue was down almost 7%.

The US fashion firm has responded to the struggles at its core brand by taking over luxury European labels Versace and Jimmy Choo.

However, the benefits of those multi-billion dollar acquisitions are yet to be seen.

Profits for Michael Kors sank 37% to $137.6m for the three months to 29 September compared with the same period last year.

Total revenue was up 9% to $1.3bn, boosted by last year’s takeover of Jimmy Choo, the British luxury footwear maker made famous by Sex and the City, for almost £900m.

But at Michael Kors – which accounts for the bulk of the firm’s business – total revenue from retail, licensing and wholesale was roughly flat, while sales at stores in Europe fell by 10%.

The firm blamed the declines partly on overly aggressive efforts to limit stock, as it tries to cultivate a more exclusive, luxury image.

“The consumer is absolutely responding to the brand,” chief executive John Idol said. “We’ve got to get more inventory into the stores to be able to really build consumer demand.”

Shares were down 14% at $49.42 in afternoon trading in New York.

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The firm’s acquisition of Versace – announced in September and expected to be completed in the next six months – will position the company for growth over the long term, he added.

The company, to be renamed Capri Holdings, plans to boost spending on marketing and open new Versace stores, with the goal of more than doubling the brand’s annual revenue to $2bn over the next few years.

Coty struggles

Weakness in Europe also hurt US cosmetics company Coty, whose many brands include Covergirl, Max Factor, Bourjois and Rimmel.

The firm posted a loss of $12.1m in the quarter, as revenues shrank by more than 9% year-on-year to $2bn.

The poor results sent shares tumbling 18% in New York to $9.14. The stock has almost halved in value this year.

Coty said demand for its more expensive products, such as perfumes and skin care associated with brands like Calvin Klein and Hugo Boss, remained strong.

However, its consumer beauty segment was struggling, especially in Europe as well as the US.

Supply chain issues, including a hit to a North Carolina factory from Hurricane Florence in September, also contributed to the problems.

Chief executive Camillo Pane said the quarter was a “disappointing setback in achieving our financial targets and strategic goals, and we are working hard to solve the issues”.

Shares were down almost 20% at $8.99 in mid-day trade in New York.

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