Europe weakness was the Achilles' heel for a broad swath of retailers early this year, from teen outfitters Abercrombie & Fitch Co. (ANF) to office-supplies seller Staples Inc. (SPLS). On the luxury side, Tiffany & Co. (TIF) last month trimmed its outlook for the year, citing softness in U.S. sales--including a 4% drop at its New York City flagship store, which relies heavily on European tourists--and "less than ideal" conditions in Europe, in addition to flattening growth in China.
But Michael Kors's Europe same-store sales increased 14% in the latest period. While that is slower than the 34% growth in the fiscal third quarter and trails North America's 37% increase in the latest period, Mr. Idol indicated the deceleration was due to inventory constraints.
"We're actually seeing acceleration in the current quarter," he said. The company is still relatively new in Europe compared with its three-decade presence in North America, but it has been plowing money into marketing there and in Japan to build brand awareness.
Wedbush Securities analyst Corinna Freedman said she believes overall same-store sales in the current quarter are likely trending near the 35% guidance unveiled Tuesday for the period, which is only a few weeks away from closing.
Michael Kors's strength in Europe was one of the drivers of its gross margin improvement. Gross margin widened to 57.7% from 55.9%, better than forecast, as high-margin Europe and retail sales both expanded as a percentage of sales mix. Margin-rich accessories also have been moving to a bigger proportion of Michael Kors's mix, representing 75% in the latest fiscal year compared with 62% the year before.
Michael Kors predicted the new fiscal year would be stronger than Wall Street expected. It forecast earnings of $1.08 to $1.12 a share on revenue of $1.7 billion to $1.8 billion, reflecting a same-store increase of around 20%. Analysts polled by Thomson Reuters recently expected earnings of 98 cents on revenue of $1.69 billion.
The same-store sales target, though slower than the 39% of the 2011 fiscal year, is an improvement from what the company had previously forecast, Ms. Freedman noted.
For the current quarter, the company is targeting per-share earnings of 18 cents to 20 cents on revenue of $360 million to $370 million, topping Street estimates of 17 cents and $324 million, respectively. The company is assuming a same-store sales increase of around 35%.
Shares rose on the results and outlook. The stock was up 6.7% at $40.70 in recent trading, after climbing as much as 12% earlier. The stock, which went public in December, has surged after pricing at an above-forecast $20.
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