Pulling back on promotions and fine-tuning the product seems to have provided a kick to the handbag category, with Kate Spade, Michael Kors and Coach all showing better fourth-quarter results. Even Wall Street may be a believer.
Shares of Kate Spade & Co. rose 11 percent to close at $21.99 in Big Board trading on Tuesday. Its competitors in the handbag wars also saw their shares rise: Michael Kors Holdings Ltd. was up 1.1 percent to close at $57.29, while Coach Inc. rose 1 percent to $39.33.
Kate Spade’s shares jumped following the company’s posting of fourth-quarter results. Chief executive officer Craig A. Leavitt said the company on “an apples-to-apples basis saw comps rise 14 percent on top of [a 28 percent] comps gain” a year ago.
The company said net income for the three months ended Jan. 2 fell 51.4 percent to $61.5 million, or 48 cents a diluted share, from $126.5 million, or 99 cents, a year ago. On an adjusted basis, excluding operations being wound down, the company met Wall Street’s earnings per share expectations of 32 cents, compared with the year ago EPS of 24 cents. Net sales rose 7.6 percent to $429 million from $399 million a year ago, and up 14 percent on an adjusted basis.
The company provided guidance for 2016, which included a forecast of a net sales range of between $1.39 billion and $1.41 billion, diluted EPS of 70 cents to 80 cents, and direct-to-consumer comps growth in the low to mid-teens.
Leavitt said the company has been focused on protecting the quality of its sales and has done that in part through a pullback on promotional events last year. He also said there will be some additional pullback in the wholesale channel likely through June. The company said e-commerce, which represents 20 percent of its reported business, saw double-digit growth on its flagship e-commerce site last year. Kate Spade added the option of buying online and shipping from store over the holidays. It plans to allow consumers to buy online and pick-up-in-store as an option later in the year.
The ceo cited growth in backpacks and satchels, plus strong market share in the cross-body category. Leavitt pointed to the Kate Spade New York collaboration over the holidays with Everpurse for a collection of bags incorporating wireless iPhone charging technology. Calling the product line successful, he said, “The consumer is interested in that technology. We will continue with the collaboration in 2016. This shows that the consumer is looking for both fashion as well as utility from us. This is a place where we can win.”
On the international front, the company saw more impact at its outlet store business. “This is where tourists cluster. There [will still be] some headwinds with the international consumer in terms of the amount of traffic and size of the transaction,” Leavitt told WWD. Separately, the brand will be available in India later this year.
Wells Fargo Securities analyst Ike Boruchow said, “Kate continues to take share in the handbag space,” adding that the company’s shares continue to receive renewed momentum, as do their peers Coach and Kors, “as the handbag space is becoming less risky in the eyes of investors this year.”
Although Kors last month said net income slipped 3 percent for the fourth quarter, the company benefited from contribution from the digital flagship business and growth in international markets. Overall, the company had been pulling back on its wholesale distribution to better control sales in its own retail stores. The new spring product line for the handbag category has a bit more focus on smaller-size bags, such as cross-bodies. While the smaller bags equal flat sales due to lower price points, actual unit sales have gone up as consumers were also buying different-size accessories to fit the smaller bags, Kors ceo John Idol said.
At Coach, which also has been pulling back on flash sales on its own sites, the company in January said the quarter reflected a sales gain for the first time in 10 quarters. It’s the first time the company can say that it has proof that the new Stuart Vevers’ line, and shift to a lifestyle brand, is gaining traction with consumers. The company is planning for positive comps by the end of the fourth quarter.