Why Michael Kors Holdings Ltd. Stock Dove 25% in May

By Markets Fool.com

What: Luxury retailer Michael Kors' stock plunged 25% in May, according to S&P Capital IQ data. That drop put shares 50% lower than a year ago, however, the stock is still up roughly 100% from its initial public offering in late 2011.

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KORS Chart

KORS data by YCharts.

So what: The catalyst for last month's dive was surprisingly weak fiscal-fourth-quarter results posted on May 27. Sure, revenue rose by 23%, but that gain was entirely due to a growing store footprint and not additional sales at existing retail locations. In fact, comparable-store sales shrank by 2%. That's a significant departure from the 9% gain Michael Kors booked in the prior quarter and the double-digit comps improvements it managed in every quarter of fiscal 2014. In the year-ago quarter, in fact, the company booked a 26% comps gain that powered a 54% spike in sales.

Meanwhile, profitability slipped slightly in the quarter but remained healthy at above 58% of sales. Fourth-quarter earnings of $0.90 per share were just shy of Wall Street's $0.91-per-share target.

Now what: Worse than that slight miss, though, was management's soft forecast for the current fiscal year. Michael Kors expects roughly $930 million in sales this quarter, below analysts' $1.1 billion estimate. Management also issued guidance for FY 2016 sales and profits that, while representing improvement over the previous year, weren't as high as Wall Street had hoped.

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"This will be a year of strategic investments," CEO John Idol said in a press release. But he explained that the spending, which will pressure profits, should help the company march back toward the growth pace to which investors had become accustomed. "Longer term, as we execute on these growth strategies and begin to cycle our strategic investments, we expect to deliver accelerated and sustainable earnings growth and continue to return value to our shareholders," Idol said.

The article Why Michael Kors Holdings Ltd. Stock Dove 25% in May originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool recommends Apple and Michael Kors Holdings. The Motley Fool owns shares of Apple and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.