Please ensure Javascript is enabled for purposes of website accessibility

Michael Kors and Mattel Inc. Soar as Stocks Drop

By Demitri Kalogeropoulos - Feb 2, 2016 at 8:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Indexes fell nearly 2% today, but these two retailers posted huge stock price gains.

Slumping oil prices helped push stocks significantly lower today. The Dow Jones Industrial Average (^DJI 0.25%) lost 295 points, or 1.8%, and the S&P 500 (^GSPC -0.26%) shed 36 points, or 1.9%.

^INX Chart

^INX data by YCharts

But two retailing stocks bucked that strong down trend today. In their fourth-quarter earnings reports published before the opening bell, Michael Kors (CPRI 1.90%) and Mattel (MAT -0.11%) both gave investors reason to believe in an operating turnaround after a long string of disappointing results.

Michael Kors' strong holiday season
Luxury retailer Michael Kors surged 24% higher after posting surprisingly strong fourth-quarter results, yet the spike still left long-term shareholders down nearly 50% from the all-time high they saw in early 2014.

Image source: Michael Kors.

For the critical holiday shopping season, the retailer's revenue and earnings growth beat management's expectations. Comparable-store sales fell by 1%, which translates into a 2% gain after accounting for foreign currency swings. That was a solid improvement over the prior quarter's 3% comps drop.

Michael Kors turned in a mixed profitability performance as pricing markdowns offset gains in its licensing business. Overall, gross profit margin fell by less than 1% on a currency neutral basis, to 60% of sales.

For the quarter ahead, management forecast minor comps gains as sales are expected to come in at $1.14 billion at the midpoint of guidance and EPS to settle between $0.93 and $0.97. While both of those figures were below consensus estimates, CEO John Idol noted that the recent growth trends are improving into the current quarter. "We are on track to deliver solid financial performance in the fourth quarter," he said in a conference call, "as comps continue to show sequential improvement and we capture additional market share in the luxury fashion accessories category globally ."

Mattel's barbie-fueled growth rebound
Mattel's stock jumped 14% higher after the toys and games maker beat analysts' fourth-quarter estimates. Profit figures edged consensus targets as earnings improved to $0.63 per share compared to the $0.61 analysts had forecast.

Image source: Mattel.

The company succeeded in returning to growth in its flagship Barbie business over the holidays, which slumped by double-digits in 2014. Meanwhile, big gains in the Hot Wheels and Fisher Price franchises contributed to Mattel posting slight quarterly sales growth, rather than the drop that Wall Street was bracing for. "We achieved our goal of stabilizing the business," CEO Chris Sinclair said in a conference call .

The company didn't have to sacrifice profitability to achieve those revenue gains, either. Instead, cost cuts powered a huge expansion on the profit side. Operating income improved to 15% of sales, up from 12% a year ago and Mattel's bottom line profits strengthened as net income jumped to 11% of sales from 7.5 %.

Looking ahead, the company still faces the massive challenge of replacing the Disney Princess business it lost to competitor Hasbro. Its American Girl product line isn't performing up to plan, either. But management believes that overall sales won't shrink in 2016, and earnings should continue to benefit from the kind of expense discipline that boosted profits this quarter. Altogether, that was enough evidence of a turnaround to excite investors today.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,998.06 (0.25%) $85.62
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,286.01 (-0.26%) $-11.13
Capri Holdings Limited Stock Quote
Capri Holdings Limited
CPRI
$52.97 (1.90%) $0.98
Mattel, Inc. Stock Quote
Mattel, Inc.
MAT
$23.18 (-0.11%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.