Mar 27, 2019 | By Volker Ketteniss
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Kate Spade confirmed yesterday that it is “exploring strategic alternatives”. The not-so-surprising news still sent its shares up almost 15% at Thursday’s close to $22.56, valuing the luxury fashion and accessories brand at $2.89bn. A deal could be imminent given Kate Spade’s early announcement of its Q4 results, plus the absence of a full-year forecast, one analyst noted.
So what would a potential buyer/investor be getting for their bucks?
Well, Kate Spade’s final quarter earnings topped estimates but fell just short on revenue. In all, the brand is performing pretty well given a tough domestic high end accessories market where a strong dollar continues to hurt foreign tourist spending.
Net income jumped 39% to $$85.5m/66 cents per share from $61.5m/48 cents a year ego. Adjusted earnings hit 41 cents a share, well above the 34 cents analysts had called for.
Sales rose 9.8% in the final quarter to $471m, just short of analysts’ expectations of $472m, helped by 52 more stores in 2016. North American sales grew 9.5% and international sales jumped 12.4%.
Comp sales, however, fell 1.5% in Q4, as fewer customers visited its kate spade new york stores.
By comparison, direct-to-consumer comp sales increased 9% during the period.
For the year, the company reported profit of $153.6m/$1.19 per share on revenues of $1.38bn.
“Our solid fourth quarter and fiscal year performance demonstrate the strength of our differentiated business model, as we continued to gain market share and deliver strong growth despite a challenging retail environment,” said CEO Craig Leavitt.
The announced review, via financial advisor Perella Weinberg Partners, comes after pressure from activist firm Caerus Investors, which told Kate Spade management that its shares were undervalued, and suggested it seek a larger buyer.
“The company’s margins are well below peers with material opportunity for expansion as licensing revenues grow and the business scales over time,” Caerus said in a letter to the board, adding: “A potential buyer would be able to realize material cost and revenue synergies over time.”
That process has officially begun. Watch this space…
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