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Despite Struggling Malls and Department Stores, Michael Kors Is Doing Just Fine, Thanks

Window showcasing handbags at a Michael Kors store
Bags at a Michael Kors store
Photo: Getty Images

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After reports emerged last week that some Nordstrom stores had stopped selling Michael Kors handbags because of low customer interest, poor quality, and high return rates, the American brand rallied on Wednesday morning with a determinedly positive message. Specifically, that although the malls and department stores it sells to have been hard-pressed to draw in customers lately, it's continued to perform well with shoppers.

Better than expected, even. While reporting Michael Kors's third quarter sales in February, company execs predicted that sales for the fourth quarter would come in between $1.13 and $1.15 billion. This Wednesday, they announced that revenue in the fourth quarter of fiscal 2016, which ended April 2, actually clocked in at $1.2 billion, beating their expectations. Suck it, haters.

For context: that's growth of 11.7 percent relative to the year prior. During the full year, sales rose 7.8 percent to $4.7 billion from $4.4 billion in fiscal 2015.

What's driving all that growth? In part, new store openings. While wholesale sales increased just 3.5 percent in the fourth quarter, sales from Michael Kors's own stores and e-commerce sites grew 22 percent, thanks to the rapid growth of Kors's still-nascent digital flagships (the brand launched its US site in 2014 and its Canadian site in April) and 142 store openings since this time last year.

The development of Michael Kors stores that have been open more than a year, however, is much less impressive. Sales for those locations grew by only 0.3 percent. Store openings add an immediate boost to the company's financial results, but that latter statistic says something more worrisome about the health of the brand.

Which brings us back to those department stores. Michael Kors execs say that as mall traffic has declined, many stores have put their product on heavy markdown in an effort to draw shoppers back in. That, they very correctly note, is really bad for Kors's brand image. (That promotion-induced problem isn't unique to Michael Kors: J.Crew, for instance, came up against the same thing two years ago. Nor is it the only brand affected by flagging mall traffic: see the sinking ships that are PacSun and Aeropostale.) In order to preserve the vitality of Kors's brand, the team plans to reduce its inventory levels in department stores.

Like, perhaps, Nordstrom?