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Wells Fargo Has Upgraded Kate Spade to ‘Outperform’

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Dec. 4 2020, Updated 10:53 a.m. ET

KATE’s price movements

Kate Spade (KATE) has a market cap of $2.5 billion. It rose 0.82% to close at $18.53 per share on September 13, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.7%, -2.2%, and 4.3%, respectively, on the same day.

KATE is trading 2.5% below its 20-day moving average, 6.0% below its 50-day moving average, and 9.8% below its 200-day moving average.

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Related ETF and peers

The Vanguard Small-Cap ETF (VB) invests 0.09% of its holdings in KATE. The ETF tracks the CRSP US Small Cap Index. The market-cap-weighted index includes the bottom 2%–15% of the investable universe. The YTD price movement of VB was 8.4% on September 13, ,2016.

The market caps of KATE’s competitors are as follows:

  • Gap (GPS): $9.3 billion
  • Coach (COH): $10.4 billion
  • Fossil Group (FOSL): $1.4 billion

KATE’s rating

Wells Fargo has upgraded Kate Spade’s rating to “outperform” from “market perform.” It also increased the stock’s price target to $23.50 from $17 per share.

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Performance of Kate Spade in fiscal 2Q16

Kate Spade reported fiscal 2Q16 net sales of $319.7 million, a rise of 13.7% from $281.1 million in fiscal 2Q15. The company’s gross profit margin fell 2.2%, and its operating income rose 94.9% between fiscal 2Q15 and fiscal 2Q16.

Its net income and EPS (earnings per share) rose to $26.8 million and $0.21, respectively, in fiscal 2Q16 compared to $8.5 million and $0.07, respectively, in fiscal 2Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $53.7 million in fiscal 2Q16, a rise of 30.0% from fiscal 2Q15.

Kate Spade’s cash and cash equivalents and inventories rose 32.5% and 15.4%, respectively, between fiscal 2Q15 and fiscal 2Q16. Its current ratio rose to 2.7x, and its long-term debt-to-equity ratio fell to 1.3x in fiscal 2Q16 compared to 2.2x and 2.4x, respectively, in fiscal 2Q15.

Projections

Kate Spade (KATE) has made the following projections for fiscal 2016:

  • net sales of $1.37 billion–$1.40 billion
  • adjusted EBITDA of $242 million–$260 million, which excludes depreciation and amortization
  • EPS of $0.63–$0.70 with a normalized tax rate of 40%
  • capital expenditures of $65 million–$70 million
  • 40–45 planned new store openings

In the next part, we’ll take a look at Thor Industries (THO).

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