Snapshot of Kate Spade’s performance in fiscal 2Q16
Kate Spade (KATE), which reported its 2Q16 results on August 3, 2016, reported a 13.7% YoY (year-over-year) increase in its total sales. Revenue for the second quarter of 2016 stood at $320 million, beating Wall Street estimates by $1.5 million. After excluding sales for wind-down operations for the second quarter of 2015, the increase in net sales was about 17.2%.
Kate Spade’s same-store sales performance was particularly unimpressive, as the comps grew by just 4% during the quarter. In comparison, Wall Street on average was looking for a 12% growth in comps. Read the next section to know more about the reasons behind Kate Spade’s disappointing sales comps.
A greater promotional environment puts margins under pressure
Gross margin fell to 59.7% in 2Q16 from 61.6% last year mainly due to heavier promotions at outlet stores and higher penetration of lower margin wholesale sales. Kate Spade has been focusing on increasing its full price sales in order to protect the brand’s integrity and the company’s margins.
Despite a fall in gross margin during the quarter, Kate Spade continues to display one of the best numbers in the peer group. It outshines the bigger apparel and accessory companies such as PVH (PVH) and VF (VFC), which reported gross margins of 52% and 48%, respectively, in the last reported quarters. Kate Spade’s performance is comparable to rival Michael Kors (KORS) and trails that of Coach (COH). KORS and COH reported gross margins of 58% and 69%, respectively, in the last reported quarters.
Net income increases more than three times on account of easier prior-year comparisons
Kate’s net income during the quarter stood at $26.8 million as compared with $8.5 million in 2Q15 as the company’s earnings were hurt by the closing of its Kate Spade Saturday and Jack Spade stores during the previous year. Earnings per share climbed to 11 cents in 2Q16 from eight cents during the prior-year period.
ETF investors seeking to add exposure to Kate Spade can consider the iShares S&P Mid-Cap 400 Value ETF (IJJ), which invests 0.18% of its portfolio in the company.