Why Michael Kors Holdings Ltd Stock Slipped Today

What happened

Shares of Michael Kors Holdings Ltd (NYSE: KORS) were falling for the third straight session on what appeared to be a sustained reaction to a disappointing earnings report from rival Tapestry (NYSE: TPR). after the parent of Coach and Kate Spade lost 12% on Tuesday. Michael Kors stock fell 3% that day, but closed down another 6.2% today as investors seemed to worry that Kors could suffer from similar challenges.

Two photos of models posing with a Michael Kors handbag and Jimmy Choo shoes

So what

Tapestry, which also owns the Stuart Weitzman brand, is seen as Michael Kors’ closest competitor. The two compete directly in handbags, where they are two of the biggest players, have their own shoe brands, and are subject to larger trends in retail as both operate their own stores and sell through partners like department stores.

Sales at Stuart Weitzman were negatively impacted in the period by production problems, and comparable sales fell 9% at Kate Spade as the company scaled back on discounting and wholesale distribution following its acquisition last year.

Tapestry maintained its full-year revenue guidance in the report, but raised its guidance for earnings-per-share (EPS) growth from 17%-21% to 19%-21%.

Now what

Michael Kors and Tapestry have also been operating out of the same playbook in recent years as both have made high-profile acquisitions. Just as Tapestry acquired Stuart Weitzman and then Kate Spade, Michael Kors bought Jimmy Choo last year to give it greater exposure to the high-end women’s shoe market, and to help it build a global luxury brand as Tapestry aims to do.

In addition to following Tapestry stock downward, Kors shares may also just be taking a breather, as the stock had gained more than 75% over the past year before the recent slide. Tapestry’s struggles with Stuart Weitzman are a reminder of the pitfalls of such an acquisition strategy, and Kors’ organic growth is still expected to be slow at best. We’ll learn more when the company reports fourth-quarter earnings, which are expected at the end of the month.

error: Content is protected !!