Investors See Buying Opportunity in Kate Spade Despite So-So Earnings

Kate Spade & Co. (NYSE: KATE) reported its fourth-quarter financial results before the markets opened on Tuesday. The company said it had $0.32 in earnings per share (EPS) on $429 million in revenue, which compares to consensus estimates from Thomson Reuters of $0.32 in EPS on revenue of $441.64 million. In the same period of last year, Kate Spade posted EPS of $0.24 and $398.57 million in revenue.

Reported North American net sales for the fourth quarter of 2015 were $371 million, an increase of $45 million, or 13.6%, from the comparable 2014 period. This segment also ended the quarter with 104 specialty retail stores and 64 outlet stores, reflecting the net addition over the past 12 months of 11 specialty retail stores and seven outlet stores.

For the international segment, the company said net sales of were $52 million, a decrease of $8 million, or 13.3%, from the comparable 2014 period.  The international segment ended the quarter with 22 Kate Spade New York specialty retail stores, 52 concessions and 13 outlet stores, reflecting the net reduction over the past 12 months of 10 specialty retail stores and one outlet store.

The Adelington Design group segment had net sales of $6 million, a 52.8% decrease from the previous fourth quarter.
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In terms of guidance for the 2016 full year, Kate Spade expects to have EPS in the range of $0.70 to $0.80 and net sales between $1.385 billion and $1.410 billion. The consensus estimates call for $0.82 in EPS on $1.45 billion in revenue for the full year.

Kate Spade CEO Craig A. Leavitt commented on earnings:

In 2015, we became a stronger, refocused Kate Spade & Company. We made significant progress along our two axes of growth – product category and geographic expansion – introducing 14 new product categories and entering 8 new countries. Our results reflect our success, with sales growth of 21% on a pro forma basis over last year. In addition, our quality of sale efforts are successfully fueling brand aspiration and our channel-agnostic approach was a key driver of growth both during the fourth quarter and throughout 2015. We will continue to prioritize these important points of differentiation in 2016.

Shares of Kate Spade were traded up nearly 5% to $20.75 early Tuesday, with a consensus analyst price target of $27.06 and a 52-week trading range of $15.10 to $35.75.