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By
Reuters
Published
Aug 3, 2016
Reading time
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Kate Spade misses profit estimates, slashes full-year forecasts

By
Reuters
Published
Aug 3, 2016

Accessories and apparel maker Kate Spade & Co slashed its full-year sales and profit forecasts on Wednesday, sending its shares down more than a fifth.

The New York-based company also reported a lower-than-expected profit for the second quarter as a strong dollar discouraged tourists from shopping at its stores.


Kate Spade New York - Fall-Winter2016 - Womenswear - New York - © PixelFormula


With demand for luxury handbags slowing in North America, Kate Spade has been adding new product categories, including apparel and furniture, to develop into a lifestyle brand.

The company, which is known for its quirky and colorful satchels and totes, has been focusing on its kate spade new york brand as well as its online business as customers turn to the internet for shopping.

Kate Spade's comparable sales, including online sales, rose 4 percent in the quarter, but widely missed the average analyst estimate of a 13.1 percent rise, according to research firm Consensus Metrix.

The company struggled in its "bricks and mortar channels, where we saw lower traffic and transaction size in our tourist-dependent stores" due to foreign exchange headwinds, Chief Executive Craig Leavitt said.

"Key sale events fell short of our expectations as customers look for deeper discounts, a trend which negatively impacted both total sales and comps this quarter," he said.

Leavitt said the company was forced to offer more promotions than it had anticipated at its outlet stores - stores where retailers usually sell out-of-season inventory.

"We have increased our promotions in this channel as we work to maintain market share," he said.

OUTLOOK BEARISH

Kate Spade sharply cut its forecast for full-year earnings to 63-70 cents per share from 70–80 cents, and lowered its net sales forecast to $1.37 billion-$1.40 billion from $1.39 billion-$1.41 billion.

Its net income more than tripled to $26.8 million, or 21 cents per share, in the quarter ended July 2, partly due to a benefit related to discontinued operations.

The company wound down its lower-margin Kate Spade Saturday business and has moved its Jack Spade menswear brand to an in-store format from retail stores.

Excluding items, Kate Spade earned 11 cents per share, missing the average analyst estimate of 14 cents, according to Thomson Reuters I/B/E/S.

Net sales rose 13.7 percent to $319.7 million, beating the average estimate of $318.5 million.

Kate Spade shares were down 18.3 percent at $16.47 in late morning trading. The stock fell as much as 22 percent earlier, its biggest intraday percentage fall in nearly two years.

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