Fashion Retailer Slashes Outlook -- WSJ
04 August 2016 - 5:03PM
Dow Jones News
By Suzanne Kapner
Kate Spade & Co. shares tumbled about 20% Wednesday after
the company reported disappointing earnings and slashed its
financial forecasts for the year.
Chief Executive Craig Leavitt said results were weighed down by
lower spending by tourists, a transition to new handbag styles and
an extremely promotional retail environment that has conditioned
shoppers to hunt for deals.
Comparable-store sales, a key retail metric that includes stores
open at least a year, grew just 1% in the three months to July 2
from the year prior. When e-commerce sales are included, comparable
sales grew 4%, well below Wall Street forecasts of a 13%
increase.
"Key sale events fell short of our expectations as customers
look for deeper discounts, a trend which negatively affected both
total sales and comps this quarter," Mr. Leavitt told analysts.
The company also underestimated demand for a new group of
handbag styles called Cameron Street and didn't have enough in
stock, which also hurt sales in the period, he said.
Kate Spade's disappointing results raised concern among
investors that rivals Coach Inc. and Michael Kors Holdings Ltd.
could come up short when they report financial results next
week.
But Neil Saunders, the chief executive of research firm
Conlumino, suggested the opposite might be happening. He wrote in a
note to clients that a comeback at Coach, which has dialed back
promotions, upgraded products and revamped stores, could be taking
share from Kate Spade.
While the shares of Coach and Kors recovered most of their
earlier losses Wednesday, the shares of Kate Spade were down 19% in
recent trading at $16.25. Shares of Kors were down 2.9%, while
Coach was off just 0.3%.
Kate Spade's Mr. Leavitt said the company's factory outlet
stores were particularly challenged. Average spending per
transaction continued to decline in its 65 North American outlet
stores, forcing the company to increase promotions to maintain
market share.
Although the company tried to hold the line on promotions in its
full-priced retail stores, gross profit as a percentage of sales
fell to 59.7% compared with 61.6% a year earlier, mainly due to
heavier promotions at the outlet stores.
The company, which operates 397 retail stores world-wide and
sells its products in department stores, now expects full-year
earnings to total 63 cents a share to 70 cents a share, down from
an earlier forecast of 70 cents to 80 cents per share.
Net income was $26.8 million, compared with $8.5 million a year
earlier. The year-earlier period was hurt by the closing of its
Kate Spade Saturday and Jack Spade stores. Kate Spade's net sales
climbed 13.7% to $320 million.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
August 04, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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