February 5, 2015 / 12:57 PM / 3 years ago

UPDATE 3-Lackluster forecast overshadows Michael Kors' profit beat

(Adds analyst comments, updates shares)

By Devika Krishna Kumar

Feb 5 (Reuters) - Michael Kors Holdings Ltd forecast a lower-than-expected profit for the current quarter, disappointing investors used to the luxury accessories retailer’s spectacular growth over the past three years.

Shares of the company, founded by fashion designer Michael Kors, fell as much as 6 percent on Thursday.

Michael Kors has a history of beating estimates by handsome margins and the holiday quarter was no different.

Still, investors focused on the soft forecast, a slowdown in North American sales in the October-December quarter and the first ever drop in quarterly margins.

Some analysts said the company’s clutches and watches could be losing their niche appeal. Michael Kors has become the pre-eminent brand in affordable luxury, growing bigger than rival Coach Inc, as shoppers lap up its trendy products.

“We are becoming increasingly concerned that the ubiquity of Kors handbags/accessories across all channels is perpetuating the need for a heightened promotional strategy to drive traffic and conversion,” Canaccord Genuity analysts wrote in a note dated Feb. 3.

Michael Kors’ North America same-store sales growth slowed to 6 percent in the three months ended Dec. 27, falling below 10 percent for the first time.

The company offered more promotions in the quarter, in contrast to Coach and Kate Spade & Co, which reported strong results with less emphasis on discounting.

However, Michael Kors still managed to report a 30 percent rise in revenue and 32 percent rise in third-quarter profit.

“If you strip out the noise, Michael Kors is still growing very nicely,” Nomura Equity Research analyst Simeon Siegel said.

The company blamed a shift in consumer shopping habits for the slowdown in North America.

“(Shoppers) are migrating their purchases to our e-commerce site at a greater rate than we had initially anticipated,” Chief Executive John Idol said on a call.

Michael Kors said North America same-store sales would have been 380 basis points higher, if the 73 percent growth in e-commerce sales had been included.

The company, which gets about 16 percent of revenue from outside North America, also said a stronger dollar weighed on forecast.

Michael Kors said it expected current-quarter profit of 89 to 92 cents per share, below the average analyst estimate of 94 cents, according to Thomson Reuters I/B/E/S.

For the third quarter, the company earned $1.48 per share, topping the average analyst estimate of $1.33 per share.

Michael Kors shares were down 3.3 percent at $68.99 by midday on Thursday. (Editing by Don Sebastian and Saumyadeb Chakrabarty)

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