WWD.com/business-news/financial/fifth-pacific-posts-loss-6452584/
government-trade
government-trade

Kate Spade Bright Spot for Fifth & Pacific

Juicy Couture struggles with flat third-quarter comps, lower gross margins.

NEW YORK — Enthusiasm for Kate Spade is trumping troubles at Juicy Couture for Fifth & Pacific Cos. Inc.

Shares of Fifth & Pacific shot up 11.2 percent to $11.40 Thursday even as the company said it cut 20 percent of the Juicy corporate workforce and that another year of merchandise tweaks was in the offing.

Kate Spade is clearly the standout performer at the company.

The division’s adjusted operating profits rose to $9 million from $5 million in the third quarter as sales jumped 35.1 percent to $102 million. The brand also continues to open stores, and is buying back its Japanese business and branching out with Kate Spade Saturday, a less expensive, more causal line with global prospects.

RELATED CONTENT: Click Here for More Earnings Coverage >>

Investors analysts have pushed Fifth & Pacific to spin off the Kate Spade business before, but William L. McComb, chief executive officer, held his ground. Now the ceo seems ready to at least let Wall Street take a closer look at the business and is contemplating an investor day for the brand in the first half of next year.

Corinna Freedman, an analyst at Wedbush Securities Inc., said Kate Spade is quirky, digitally savvy and simply clicking with a certain shopper.

“[The Kate Spade customer] is not as trendy as the Michael Kors customer, but maybe she’s not as bohemian as the Anthropologie customer,” Freedman said, noting the product was “refined.”

The comparison with Kors is made frequently. And some are looking bigger still.

“We think Kate Spade is the next Coach,” said Mary Ross Gilbert, managing director at Imperial Capital. “Kate Spade we think is relevant across more categories than Coach. They have a small, but fast-growing apparel presence. We think it could be in the multibillion-dollar range.”

RELATED STORY: Kate Spade Launching Saturday Line >>

Gilbert said it was possible that the company would spin off part of Kate Spade next year, creating a tracking stock that would “properly value the business.”

Overall, Fifth & Pacific Cos. Inc. showed improvement in the third quarter. Net losses narrowed to $18.8 million, or 17 cents a share, from $214.6 million, or $2.27, a year ago.

Adjusted losses of 5 cents a share were 2 cents better than the 7 cent loss analysts projected. The company warned last month that Juicy wasn’t performing as strongly as expected.

Sales for the three months ended Sept. 29 fell 4.2 percent to $364.6 million from $380.7 million. The company, which used to be known as Liz Claiborne Inc., is at the tail end of a period which saw it sell off its namesake brand and numerous other assets to pay down debt and focus on Juicy, Kate Spade and the Lucky Brand.

Juicy posted an adjusted operating loss of $5 million in the third quarter as sales fell 5.5 percent to $130 million. Comparable-store sales were flat.

George Carrara, who was named executive vice president, chief financial officer and chief operating officer in May, has been spending much of his time working on rejiggering the brand’s business.

Juicy stores were reset in August, but full-price sell-throughs fell. The first two fall deliveries were too heavy for the warmer weather and the company was unwilling to let inventory build. The brand is now working to lower its pricing and, beginning for next fall, refocusing on dresses, knit tops and denim as the key fashion categories.

“The brand has real chops with consumers and has an enviable international position,” said McComb. “We’re moving forward there and I’m confident about the path ahead.”