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How Did Kate Spade Perform in Fiscal 1Q16?

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Impressive same-store sales growth

In 1Q16, Kate Spade reported industry-leading, direct-to-consumer comparative sales of 19%. The company also added 14 stores during the quarter, which included nine store openings in China.

As a result, Kate’s total sales increased by 14.5% YoY (year-over-year) to $274 million. An impressive 11.8% YoY growth in the company’s North American business was the key reason behind Kate’s strong top-line growth.

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High demand

Kate Spade’s comparable sales have been growing faster than the industry average for some time now. This signals a strong demand for the brand, despite the company’s cuts in promotional events. KATE is now focusing on increasing its full price sales in order to protect the brand’s integrity and operating margins.

North American sales

North American revenue increased by 11.8% YoY to $218.7 million in 1Q16, reflecting a growth in the direct-to-consumer and licensing operations of the Kate Spade New York brand. The average retail square footage of the North American operations improved by 11% YoY to 382 thousand square feet during the quarter.

International sales were, however, weak because the company shut down its Kate Spade Saturday and Jack Spade brick-and-mortar operations and converted its Hong Kong, Macau, and Taiwan operations into joint ventures. Its international sales thus declined by 6.8% YoY during the quarter.

Gross margin improvement

Kate Spade has had best-in-class gross margin numbers. It outshines accessible luxury rivals such as Michael Kors (KORS) and Coach (COH) as well as bigger apparel and accessory companies like PVH Corp (PVH) and VF Corp (VFC).

Not only is KATE the best in its industry in terms of gross margin, but it’s also continuously improving its performance. Its gross margin increased from 60.6% in 1Q15 to 61.8% in 1Q16 as the company shut several of its underperforming brands and focused on full price sales.

Notably, ETF investors seeking to gain exposure to KATE can consider the iShares S&P Mid-Cap 400 Value ETF (IJJ), which invests 0.22% of its portfolio in the company.

Now let’s go deeper into the outlook for Kate Spade going forward.

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