Kate Spade & Co. is taking the micro approach — and it seems to be working.
Craig Leavitt, the company’s chief executive officer, said Kate Spade has been making a bigger effort since the back half of 2015 with its micro-assorting efforts. “That’s just now coming to fruition toward the middle of the first quarter. We are seeing strong results from making sure the right products are in the right stores [for each location’s] customer base,” the ceo said in an interview.
The initiative helped move the company back into the black column after getting a boost from a 17.1 percent gain in North American sales.
The company said net income was $11.6 million, or 9 cents a diluted share, compared with a loss of $55.2 million, or 43 cents, a year ago. The year-ago quarter also saw wind-down charges for discontinued operations. Net sales in the quarter rose 7.5 percent to $274.4 million from $255.3 million. The company said direct-to-consumer comparable sales growth was 19 percent, or 8 percent excluding e-commerce.
By segment, Kate Spade North America posted a 17.1 percent gain to $219 million. Kate Spade International net sales were $49 million, or an increase of 3.2 percent. The Adelington Design Group posted net sales of $7 million, an increase of $1 million or 23.8 percent.
Addressing the firm’s new approach, Leavitt gave as an example the company’s wear to work cluster of stores, which saw a higher proportion of wear to work styles, including more totes and larger bags. Kate Spade is also developing something similar to better target its online marketing efforts by analyzing what catches a user’s eye either through a click on an e-mail or usage patterns while at the brand’s site, and then upping its digital marketing efforts with emails about similar products.
The company also ensures that there’s some form of newness to add to the discovery process each time the customer checks out the brand, whether online, in a physical store or on a mobile platform. Leavitt said the firm delivers newness 12 times a year. “We are delivering newness in all full-price channels, in e-commerce and in our wholesale points of distribution,” the ceo said.
He also noted that the Broome Street label, which focuses on casual wear, has “shown strong full-price sell-throughs.” Also trending well for the firm is its collaboration with Beyond Yoga for ath-leisure products. Contrary to what some think about ath-leisure being over saturated, Leavitt said, “We expect to see continued growth in the product category, whether we continue with a collaboration or in another way.” The ceo added that its foray into the ath-leisure sector has “been a really important acquisition tool,” noting that many customers are returning to the brand to buy in other core product categories.
The company has been working on its mobile site optimization over the past year. Leavitt said there’s been “meaningful increases in traffic, with the number of orders on the mobile site having doubled over the prior year.”
In discussing the results, the ceo said, “Our first-quarter results reflect the stronger, refocused Kate Spade & Co., and underscore the effectiveness of our differentiated strategy. We continue to focus on our powerful multichannel approach, especially fueled by the robust performance of our global e-commerce business, which helped drive our industry-leading comparable sales growth of 19 percent.”
George Carrara, president and chief operating officer, said adjusted earnings before interest, taxes, depreciation and amortization margin expanded 120 basis points. “We remain well-positioned to generate significant margin expansion in 2016 and are confident in achieving our full year top and bottom line guidance.”
The company reaffirmed full year 2016 guidance for sales of $1.39 billion to $1.41 billion, with low to mid-teens comparable sales growth. Earnings per share guidance is between 70 cents to 80 cents.
During the quarter, the company operated 169 North American stores comprised of 105 specialty stores and 64 outlet stores. It also has 91 international sites comprised of 24 specialty stores, 14 outlet stores and 53 concessions. In addition, there were also 121 partner-operated stores overseas.