Less discounting and strong focus on bags take Kate Spade back on track

After a difficult first quarter when it posted a net loss, The New York-based accessories brand’s stock surged following the earnings release, which showed 10 percent to 12 percent improvements in direct-to-consumer comparable sales, excluding e-commerce.

“Our second quarter results demonstrate our focus on building a diverse business model that will drive sustainable, long-term growth. Our strategy is centred on key factors that differentiate Kate Spade & Company – including our lifestyle brand vision, partnered approach to expansion and efforts to build quality of sale. Our success with new product introductions shows that we are resonating with our existing customers, as well as attracting new customers to our brand across our four category pillars. We are driving clear results, including direct-to-consumer comparable sales growth of 10 percent versus last year,” summed up Craig Leavitt, CEO of Kate Spade & Company.

Kate Spade falls short from Wall Street estimates

Despite the comparable sales gain, Kate Spade still fell short of Wall Street’s estimates for revenues and earnings per share (EPS).

Thus, diluted earnings per share came in at 7 cents compared to diluted loss per share of 11 cents in the same year-ago quarter. Analysts polled by Yahoo Finance predicted EPS of 11 cents and revenues of 293 million dollars.

Meanwhile, net income from continuing operations was 9 million dollars, compared to a loss from continuing operations of 14 million dollars for the second quarter of 2014.Reported net sales for the second quarter were 281 million dollars, an increase of 15 million dollars, or 5.7 percent, from the comparable 2014 period.

Looking ahead, the company has raised the low end of full year adjusted EBITDA range, with revised guidance of 190 million dollars to 200 million dollars, excluding wind-down operations.

Kate Spade Chief Operating Officer George Carrara said margin expansion improved during the quarter, and the company lifted the low-end of its full-year adjusted profit guidance, reports the ‘Wall Street Journal’.

Kate Spade has been focusing on reducing heavy discounting and profit-eating promotions even if sales at Kate Spade still rose amid a pullback in promotional activity.

“The shift to even less discounting and an emphasis on returns is beginning to pay dividends,” analysts at Wunderlich Securities said in a note this week, nodding in approval to Kate Spade’s efforts to get back on track.

The analysts also said handbags are a much smaller piece of the mix for Kate Spade, compared with rivals including Michael Kors Holdings Ltd. and Coach, whose shares “remain in various stages of free fall.”