Kate Spade & Company (KATE, Financial) designs and markets accessories and apparel principally under two global, multichannel lifestyle brands: Kate Spade New York and Jack Spade. The company also owns the Adelington Design Group, a private brand jewelry design and development group that markets brands through department stores. The company also has a license for the Liz Claiborne New York brand, available at QVC, and Lizwear, which is distributed through the club store channel.
The company reported a pleasing and strong third quarter. The results were driven by a strategic Omni channel approach. In addition, the company reported meaningful Adjusted EBITDA expansion for the first nine months.
Strong third quarter results
Net sales for the third quarter were $275 million (an increase of $57 million, or 26.1% from the prior year quarter). Reported net sales for the third quarter were $277 million (an increase of $27 million, or 10.7%, from the prior year quarter). Third quarter direct-to-consumer comparable sales growth was 16%, or 11% (excluding ecommerce). Comparable sales per square foot for Kate Spade New York stores were $1,504 for the latest 12 months, compared to $1,495 for the 12-month period ended July 4.
Gross profit as a percentage of net sales was 61.2% for the third quarter, which was 62.8% during the prior year quarter.
Selling, general and administrative expenses were $150 million, or 54.3% of net sales. On a reported basis, selling, general and administrative expenses increased to $157 million, or 56.8% of net sales in the third quarter, which was $154 million, or 61.4% of net sales in the prior year quarter.
Interest expense, net increased to $5 million in the third quarter, which was $2 million in the third quarter of 2014, primarily reflecting the absence of interest income related to the Lucky Brand Note.
Net debt decreased to $182 million at the end of the third quarter, which was $285 million in the prior year quarter.
Segmentwise results
Kate Spade North America
Kate Spade North America net sales for the third quarter were $228 million, which was an increase of $46 million, or 25.5% from the prior year quarter. Reported net sales for the third quarter were $228 million, which was an increase of $36 million, or 18.5%, from the prior year quarter.
Store counts and key operating metrics for Kate Spade New York stores are as follows:
- The company ended the quarter with 101 specialty retail stores and 63 outlet stores, reflecting the net addition over the last 12 months of 17 specialty retail stores and seven outlet stores.
- Average retail square footage in the third quarter was approximately 367,000 square feet, a 17.1% increase compared to 2014.
Kate Spade North America Segment Adjusted EBITDA was $31 million (13.5% of net sales) for the third quarter. Kate Spade North America Segment Adjusted EBITDA, including results of wind-down operations, was $31 million (13.4% of net sales) for the third quarter (which was $21 million or 11.0% of net sales in the prior year quarter).
Kate Spade International
Kate Spade International net sales for the third quarter were $41 million (which was an increase of $9 million, or 27.5% from the prior year quarter). Reported net sales for the third quarter were $43 million (which marked a decrease of $8 million, or 15.8%, from the prior year quarter).
Store counts and key operating metrics are as follows:
- The company ended the quarter with 20 Kate Spade New York specialty retail stores, 52 concessions and 13 outlet stores, reflecting the net addition over the last 12 months of three concessions and three outlet stores.
- Average retail square footage for Japan and Europe in the third quarter was approximately 75,000 square feet, an 18.4% increase from the prior year quarter.
Kate Spade International Segment Adjusted EBITDA Excluding Wind-Down Operations was $5 million (12.0% of net sales) for the third quarter.
Kate Spade International Segment Adjusted EBITDA, including results of wind-down operations, was $5 million (11.2% of net sales) for the third quarter (which was $1 million or 2.6% of net sales during the prior year quarter).
Adelington Design Group
Adelington Design Group net sales for the third quarter were $6 million (an increase of $2 million or 40.0% from the prior year quarter). Reported net sales were $6 million, a 10.0% decrease from the prior year quarter.
Adelington Design Group Segment Adjusted EBITDA Excluding Wind-Down Operations was $1 million in the third quarter and Segment Adjusted EBITDA was $1 million.
(Source: Company’s Website)
Focus at the moment
- Differentiating business.
- Expansion plans.
- Controlled points of distribution.
- Relentless quality of sale efforts.
On a concluding note
With collections spanning demographics, genders and geographies, the brands are intended to accent customers' interesting lives and inspire adventure at each turn. The company aims to achieve at least 200 basis points of Adjusted EBITDA margin improvement for the full year.
The company keeps on applying the right resources to targeted initiatives to maximize profitability.
On the geographic axis, it continued to see increased demand in North America. The women’s business continues to thrive, and it introduced a swimwear collection. It is committed to the men’s heritage, and Jack Spade’s evolved business model will enable the brand to leverage the distribution network of retail partners and expand the ecommerce platform, providing a path to grow the brand and expand the customer base.
In the near future, it will continue to focus resources on targeted initiatives designed to generate strong results, maximize profitability and deliver stockholder value. It is uniquely positioned to fulfill lifestyle brand vision and remain focused on reaching to the customers in all facets of their lives.
Disclosure: I do not hold any position in the company
