What happened

Shares of Michael Kors Holdings Ltd (NYSE:CPRI) were looking attractive today after the fashion house posted better results than expected in its second-quarter earnings report and raised its outlook following the closing of its Jimmy Choo acquisition last week. As of 11:25 a.m. EST, the stock was up 13.7%.

A model sits at a restaurant table with a glass and a Michael Kors bag

Image source: Michael Kors.

So what 

The luxury fashion brand said total revenue increased 5.4% in the quarter to $1.15 billion, which easily beat estimates at $1.04 billion. Overall retail sales were up 8% due to new store openings and an increase in e-commerce in Europe and Asia. Comparable sales declined 1.8%, but that was an improvement from a 5.9% drop in in the first quarter. 

Adjusted earnings per share (EPS) increased 37% to $1.33 as gross margin jumped 100 basis points and the company recorded a foreign currency gain of $40.5 million. That result crushed estimates at $0.83, though much of that gap was due to the one-time foreign currency gain. 

CEO John Idol called it "a transformative time" for the company as it completed its acquisition of Jimmy Choo. He added, "We believe that bringing together these two iconic brands further strengthens our growth opportunities, increases our product and geographic diversification, and importantly, creates a platform for future acquisitions."

Now what 

Following the takeover of Jimmy Choo, the company bumped up its full-year revenue outlook to $4.59 billion, up 2% from the prior year, though that includes $215 million to $225 million in incremental sales from Jimmy Choo. That compares to the analyst consensus of $4.3 billion. Michael Kors maintained its guidance of comparable sales down in the mid-single digits and operating margin of 16%. However, it raised EPS guidance from $3.62-$3.72 to $3.85-$3.95, which includes a $0.08 dilution from the Jimmy Choo deal. Management also said it sees an opportunity to grow Jimmy Choo revenue to $1 billion a year. 

Michael Kors appears to be stronger with Jimmy Choo now under its umbrella, but with comparable sales still expected to decline, the company faces considerable headwinds ahead. The hoped-for turnaround is far from complete.