Michael Kors Holdings Ltd. (KORS) shares tumbled initially over 15% following its third quarter results that highlighted dwindling retail traffic and weak guidance. The London-based apparel giant reported better than expected profit and in-line revenue but its Q4 guidance disappointed. Today’s 10.83% stock price decline to $36.82 occurred after the company reported earnings of $1.64 a share, a beat from the analysts’ consensus of $1.62. Revenue fell 7.4% to $1.35 billion, matching analysts’ expectations. The company also guided Q4 revenue at $1.04 billion to $1.06 billion, much lower than the analyst expectation $1.11 billion. The EPS forecast of $0.68-0.72 was also weak when compared to the estimate of $0.94.
The CEO noted, “Overall, we were disappointed with our North American and European comparable store sales performance during the quarter. We believe that headwinds in these markets will continue throughout the Spring season as we face reduced traffic trends in shopping malls, currency fluctuation, uncertainty surrounding certain political changes in European countries and the implementation of our reduced promotional cadence in North America. While we face certain challenges in the short term, we continue to believe that there is meaningful long-term growth ahead for the company as we focus on maintaining our luxury leadership position while expanding the Michael Kors brand internationally.”
Price action on the KORS daily chart shows that today’s slide tentatively respected the $35 level. If that level is taken out, key support may come from the $32.37 level. It is around that area that price could form a bullish ABCD pattern. Point D is targeted with the 161.8% Fibonacci expansion level of the B to C leg. If the reversal pattern is invalidated, price may not find support until the $28.50 to $30.00 region. If we see the selloff end, further upside may find key resistance from the $40.00 level.
The Trade: Buy KORS at $32.50, with a stop loss at $31.50 and a take profit at $35.50. The Risk/Reward Ratio is 1:3