Michael Kors (KORS), Ralph Lauren (RL) Q1 Earnings Likely To Suffer

Following weak reports from the likes of Kate Spade and Coach, there is a semblance of uncertainty in the market regarding luxury brands. This may also be reflected Wednesday as Michael Kors Holdings Limited and Ralph Lauren Corp. are set to report first-quarter fiscal 2017 results on Aug. 10.

Ralph Lauren’s new chief executive Stefan Larsson is reportedly taking the year as a transitional one after taking over from founder Ralph Lauren as CEO. He is aiming to cut down three layers of management, slash five percent of the work force and shut down stores under his “Way Forward” plan, Bloomberg reported.

“We see a clear path to tap into the potential and massively to drive brand strength growth and profitable sales growth,” Bloomberg quoted Larsson as saying. “It will take time though.”

The company now expects sales to fall by a percentage in double digits for the fiscal year 2017, ending around March next year. According to data compiled by Bloomberg, analysts estimated much a lesser drop of 4 percent on average.

Ralph Lauren, the name behind Team USA’s outfits at the Rio de Janeiro Olympics, has been facing slow demand at malls and departmental stores. That, combined with the erosion of the value of overseas sales due to a strong dollar has been detrimental to the brand.

Chief Financial Officer Bob Madore emphasized on relying less on promotions and discounts to move forward: “We are taking very aggressive steps to reduce the level of inventory in the value channel.”

Ralph Lauren shares fell to $86.25 following the announcement Tuesday — the biggest intraday decrease in four months. However, it regained some ground later in the day — down by 1.7 percent.

Michael Kors reported a positive earnings surprise of 2.1 percent in the last quarter. However, it continues to invest heavily in opening new store openings and expanding existing outlets. These factors, combined with the emphasis on building its e-commerce infrastructure, has resulted in an expected rise in operating costs for the company — compressing profit margins.

The strength of the dollar may also prove to be harmful for the company as it generates a portion of its sales outside the United States. As foreign currencies weaken against the dollar, the company may need to raise prices in order to maintain profit margins. This increase in price may adversely affect the demand for the products.

The company’s management reportedly anticipates first-quarter fiscal 2017 earnings to figure between 70 cents and 74 cents per share as compared to 87 cents earned in last year’s quarter.

Ralph Lauren shares were down by almost 1 percent in after hours trading while Michael Kors were down 0.32 percent.