Investors weren’t overly excited with Kate Spade & Co.’s fourth-quarter results.
That comes as a bit of a surprise, given that numbers were, for the most part, in line with expectations. The company at the end of January said it was closing its Kate Spade Saturday stores and exiting Jack Spade freestanding stores. Guidance for the year didn’t change from earlier estimates, although one surprise was the $8 million inventory writedown in connection with the store exits.
Kate Spade previously guided 2015 net sales to a range of $1.2 billion to nearly $1.28 billion, and adjusted earnings before interest, taxes, depreciation and amortization in the range of $185 million to $200 million.
Shares of Kate Spade fell 2 percent to $34.58 Tuesday in Big Board trading.
For the three months ended Jan. 3, net income was down 31.7 percent to $126.5 million, or 99 cents a diluted share, from $185.2 million, or $1.48, a year ago. The quarter included a benefit of $88 million from the reversal of income tax reserves. Adjusted diluted earnings per share from continuing operations were 24 cents versus 13 cents a year ago. Net sales rose 44.7 percent to $398.6 million from $275.4 million.
Direct-to-consumer sales rose 28 percent in the quarter. By geography, overall Kate Spade North American sales rose 50.5 percent, while Kate Spade International grew 56 percent.
For the year, net income slightly more than doubled to $159.2 million, or $1.25 a diluted share, from $73 million, or 60 cents, in 2013. Net sales grew 41.7 percent to $1.14 billion from $803.4 million.
Sterne Agee’s Ike Boruchow said, “Kate remains one of the strongest growth stories in retail today, with share gains in the core U.S. handbag business, compelling product category expansion…and strong international growth prospects.” While adjusted EPS of 24 cents missed Wall Street’s consensus estimate by 4 cents, Boruchow said that was entirely due to the inventory writedown.
The company said separately it is expanding its home categories for the Kate Spade brand through licenses. The categories include bedding, bath, furniture, fabric, wallpaper and rugs. The label already has tabletop, table linens and kitchen textiles.
Craig A. Leavitt, chief executive officer, said the Madison Ave. Collection, the line that spurs the most impulse buying, is available at the Madison Avenue unit, in Houston and its Ginza flagships, plus online. “We are looking at how the label is performing overall and using it to further engage our users as well as acquiring customers from other luxury brands,” he said.
Price points are high for the label. The Savu dress, a polyester-rayon-elastane fit-and-flare style, sells for $1,298, while the Mattea dress, a viscose-nylon shift, sells for $1,998. The Stripe Lysa skirt, a cotton-polyester-silk A-line midi, retails for $648.
As the company transitions its Kate Spade Saturday label, it is also figuring out its more casual offerings overall. One consideration on the table is the activewear/ath-leisure category. According to the ceo, the company is considering whether it should enter the category, and if so, whether it should do it themselves or with a partner,” Any decision would be for the 2016 time frame, Leavitt said.
The company just began operating its e-commerce site in the U.K. and plans to add one for France later this year. And while expansion into more home categories increases the number of offerings, Leavitt said, “Women’s will always be the anchor of the [Kate Spade] business.”