Michael Kors falls as analysts think discounts will lead to tough 1st quarter and fiscal year

MarketsAssociated Press

Shares of Michael Kors Holdings skidded to a three-year low Monday as analysts forecast a difficult first quarter and fiscal year for the maker of handbags, clothing and accessories.

The London-based luxury retailer is scheduled to report its first-quarter results before the market opens on Thursday. Analysts say its sales are being hurt by steep discounts on handbags, and they think that pressure will remain for the rest of Kors' fiscal year.

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Michael Kors Holdings Ltd. stock fell $3.37, or 8 percent, to $38.62 in afternoon trading as the broader markets declined. The shares are down 53 percent over the last year.

The company said fewer customers visited its stores in its fiscal fourth quarter, which ended March 28, and Canaccord Genuity analyst Camilo Lyon said he thinks that will hurt Kors' first-quarter results as well. Lyon said Monday that the company is sending too many handbags to wholesale outlets like department stores, causing inventory to build up. He thinks that will lead to bigger discounts that hurt the company's profit margins and some orders may get canceled later in the year.

"The company needs to reduce the ubiquity of its distribution or continue suffering brand dilution," Lyon said.

Lyon lowered his price target to $45 per share from $48 and kept a "Hold" rating on the stock.

In a note to clients published on Sunday, Wedbush analyst Morry Brown said retailers including Macy's Inc. are offering more discounts, and that affects Kors even more than rivals like Kate Spade and Coach because almost half the company's sales in North America come from wholesale.

Brown expects the company to report an annual profit of $4.27 per share, and Lyon cut his profit estimate to $4 per share from $4.20 Monday. In May, Kors said it expects to report net income of $4.40 to $4.50 per share.

FactSet says analysts expect a profit of $4.25 per share on average.

Shares of Coach Inc. also slumped, falling 93 cents or 3 percent, to $30.27. Kate Spade & Co. shares added 20 cents to $20.32.