Shares of Kate Spade & Co. rose 8.9 percent to close at $21.50 after the company posted third-quarter profits compared with a year-ago loss.
For the three months ended Oct. 3, net income was $2.3 million, or 2 cents a diluted share, against a net loss of $9.1 million, or 7 cents, in the year-ago quarter. On an adjusted basis, income from continuing operations was $5 million, or 4 cents a diluted share, compared with $3 million, or 2 cents, a year ago. Net sales failed to meet expectations, rising 10.7 percent to $277.3 million from $250.4 million. Wall Street was expecting adjusted earnings per share of 4 cents on sales of $280 million.
Craig A. Leavitt, chief executive officer, said, “Our third-quarter results, including industry-leading comparable sales increases, underscore that the diversified foundation we have created is driving sustainable growth in sales and profitability, even with our deliberate pullback in a number of key sales and promotional events. We continue to introduce new product categories and enter new markets in a thoughtful way to attract and retain customers.”
The company said direct-to-consumer comparable sales growth was 16 percent, or 11 percent excluding e-commerce. Comps per square foot at retail were $1,504 for the current rolling 12 months, compared with $1,495 for the last 12-month period ended July 4. The company also said gross profit as a percentage of net sales was 61.2 percent for the quarter, dipping slightly from the 62.8 percent a year ago.
On a GAAP basis, sales at Kate Spade North America rose 18.5 percent to $228 million, and the company ended the quarter with 101 specialty retail stores and 63 outlets. Kate Spade International net sales were up 15.8 percent to $43 million, with the company ending the quarter with 20 freestanding stores, 52 concessions and 13 outlets.
The company reaffirmed its 2015 guidance for net sales of $1.2 billion to $1.28 billion and adjusted EBITDA of $185 million to $200 million, each excluding wind-down operations. Guidance was provided by the company in May when it reported first-quarter results.
In a conference call to Wall Street, Leavitt said, “We are thoughtfully introducing new product categories within our four category pillars: women’s, men’s, children’s, and home which are resonating with existing customer as well as attracting new ones. This quarter, we were particularly pleased with the early response to our significant home expansion. And we’re making progress expanding geographically to meet the growing global appeal and demand for our brand.”
He also cited the company’s partnered approach to both geographic and product category expansion in helping the firm grow its operating margins, build scale and offer more customers access to its collections across markets. The channel-agnostic approach of the company is “critical as we continue to blur distribution lines,” the ceo said, emphasizing that the e-commerce site serves as the global flagship for the brand. He explained that the site allows the company to share its lifestyle story, important as a strategy since consumer purchases are “significantly influenced” by what the customer sees online, which drives sales both online and in the stores. New features that the company is testing include ship from stores, and location of products in the stores from online orders to maximize inventory efficiency.
The quarter saw growth in anchor categories such as handbags and ready-to-wear. He noted that the best selling collections in the handbag category are Cedar Street and its Cameron Street handbag group.The mobile site was relaunched to optimize customer experience, and Leavitt said the company saw increases in both traffic and transaction penetration via mobile. He confirmed that the company continues to have less reliance on flash sales in its North America e-commerce channel, noting that the percentage of customers “who are flash sale only continues to decrease materially. The combination of flash sale reductions and exceptional e-commerce flagship performance reinforces the success that we are seeing in our quality of sale efforts.”
Further, the company is continuing with its micro-assorting strategy, which it noted in the last quarter. One effort on this front involves its wear-to-work assortment, which gained traction in its wear-to-work cluster stores, with the company now expecting to add styles to this cluster for the fourth quarter and in 2016.
The company is planning to open a new Kate Spade New York store on London’s Regent Street in early 2016, a move to further establish its foothold in Europe.