Michael Kors earning forecast

Posted by Andrea Squatrito on

How useful and accurate can be the analysis of a firm’s retail network? There is evidence that it’s possible to accurately forecast financial results weeks before the quarterly reports, if the chosen firm has a substantial and continuous growth and generates consistent revenues with its retail sales.

Michael Kors has become more and more popular over the last years, building a retail stores’ network with presence all over the world.

Our analysis has been developed partitioning data in three macro-regions: “Americas”, “Asia” (APAC) and “Europe”. By the end of last March, we knew that Michael Kors’ retail network featured 390 stores in Americas, 182 in Europe and 101 in APAC.  We started with dividing each area’s Q4 ’15 sales amount by the respective number of stores: the results showed the annual sales per store per region. We also calculated the variations in the currencies exchange rates, trying to include the fluctuations’ effect on the firm’s sales: in particular, we took into account GBP, CNY, JPY, EU and RUB.

We developed our analysis on different “stages”, starting by simply calculating the annual sales per store per area, using 4Q ‘15 sales and store count data. We then multiplied it by the retail stores number as of 4Q ’16: we estimated total retail sales for 571.614 € millions, less than 1 million (0.17%) under the official 572.6 millions declared by Kors.

Michael Kors financials projection

The result had to be modified, according to the currencies variations occurred over the time: USD/GBP and USD/RUB raised respectively by 0.44% and 1.23%, while USD/EUR fell by 2.49%, resulting in an increase for EU sales, which gained 0.83%. On the other hand, USD/JPY reduction was balanced by USD/CNY increase, leaving APAC sales almost unmodified (+0.006%). Including the currencies’ fluctuations in our forecast, the result was even closer to the real sales amount: 572.55 € millions, just 0.007% below it.

Michael Kors financials forecating with currency

Because it was impossible to know in which moment of the year the new stores were opened, we decided to calculate a number of “effective stores”, so that the annual sales per store values could be calculated in a more precise way. We estimated 570.37 € millions, with an error of -0.38%.

Michael Kors stores 2016

Eventually, we modified our currencies fluctuations, including rates from the middle of the examined quarters in order to harmonize our results. Keeping the same variables as the previous ones, this forecast gave us a sales result of 559.674 € millions: the error, in this case, was -2.25 %.

Michael Kors Earnings forecast

The purpose of our analysis is to emphasize how relevant our model is: a well developed retail network, constant growing trends and continuous stores’ productivity levels have made possible the realization of a forecast, whose maximum error was 2.25%, two months before the firm’s financial disclosures, using only one KPI.

  

Assumptions:

  • In APAC are included Japan, China, Australia, India, Hong Kong and Macau.

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