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Kate Spade Drives Fifth & Pacific

Brand’s growth helps parent company narrow losses.

The Interior of a Kate Spade store.

Kate Spade continued to motor ahead in the first quarter with a 22 percent gain in comparable-store sales, which helped Fifth & Pacific Cos. Inc. narrow its losses more than projected.

The company is said to want to sell off Lucky Brand and Juicy Couture and trim itself down to a portfolio of one, Kate Spade, using the money from asset sales to develop that business at home and abroad.

Would-be acquirers appear to be more interested in Lucky Brand, first-round bids for which were due on Tuesday, according to sources. William L. McComb, chief executive officer of Fifth & Pacific, is said to be looking for more than $400 million for the brand.

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That would be a lot of fuel for the Kate Spade engine.

Kate Spade’s net sales shot up 63.1 percent to $141 million in the quarter. Excluding $25 million in sales from the Kate Spade Japan business, which was brought in house, the brand’s sales jumped 34.1 percent. Kate Spade logged adjusted earnings before interest, taxes, depreciation and amortization of $19 million.

McComb told analysts on a conference call Thursday that the Kate Spade Saturday business, which launched in March, was off to a good start.

“Suffice to say that we’re excited, we’re optimistic and we’re reading and reacting to every bit of information and learning that we get every day, just what you do with a new business,” McComb said. “Coming up, we’ll be opening up pop-up shops in Manhattan through a partnership with eBay now later this quarter, and of course, the marketing will be scaling all year. We plan to open two to four Kate Spade Saturday stores for the U.S. during the rest of the year, and three to six more for Japan; a very exciting plan.”

All together this year, the Kate Spade brand, including the Saturday and Jack Spade businesses, will open up to 35 full-price stores in the U.S., up to 25 international points of distribution and as many as 12 outlet doors.

At Juicy, the turnaround effort continues under the guidance of ceo Paul Blum. McComb said Blum has changed the product assortment and is focusing on outlets, the international business and also is launching Juicy Sport and an intimates line next year.

Juicy Couture’s sales fell 10.7 percent in the quarter to $98 million with a 2 percent comp decrease. Lucky’s sales rose 16.5 percent to $117 million with a 2 percent comp gain.

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Eric Beder, an analyst at Brean Capital, raised his target price on the stock to $24 from $21 and said investors have a chance to win whether or not Fifth & Pacific spins off Lucky Brand and Juicy.

“If Fifth & Pacific shift to a Kate Spade monobrand vehicle, investors should see a net cash megagrowth concept,” Beder said. “If all the brands are retained, there will remain strong top-line growth and material operating margin upside.”

Fifth & Pacific’s net losses decreased to $52.2 million, or 44 cents a share, from $60.6 million, or 60 cents, a year earlier. Adjusted losses tallied 16 cents a share, which was 2 cents better than the 18 cents analysts projected.

Sales for the three months ended March 30 gained 17.2 percent to $371.8 million from $317.1 million.

The company continues to project adjusted EBITDA of $120 million to $150 million for the full year.

Shares of the company gained 0.8 percent to $20.48 on Wall Street.