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Can Kate Spade’s 3Q16 Results Boost Investor Sentiment?

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Snapshot of the series

Kate Spade (KATE) is set to report its quarterly earnings on Wednesday, November 2, 2016, before the markets open. Analysts expect the apparel and accessory company to post earnings of $0.08 per share on sales of $312 million. During the corresponding quarter last year, KATE posted earnings per share (or EPS) of $0.06 on total sales of $275 million.

In the second quarter of the current fiscal year, the company reported $0.11 per share in earnings, missing the Wall Street average estimate of $0.14. As a result, KATE’s stock price dropped a whopping 18% on the day following the earnings release. The company’s stock is currently trading 58% below its 52-week high price.

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About Kate Spade

Kate Spade is a designer and manufacturer of apparel, women’s handbags, and fashion accessories. The company primarily operates under two lifestyle brands: Kate Spade New York and Jack Spade. Jack Spade offers fashion products for men, while Kate Spade New York sells apparel and accessories for women and children as well as home products. The company also owns Adelington Design Group, a private brand jewelry design and development group.

ETF investors seeking to add exposure to Kate can consider the iShares Morningstar Small-Cap Growth ETF (JKK), which invests 0.42% of its portfolio in the company.

Valuation updates and stock recommendations

Kate Spade is currently valued at a one-year forward price-to-earnings ratio of 22.3x. It’s trading at a premium to peers Michael Kors (KORS), Ralph Lauren (RL), and Coach (COH), which are valued at 10.5x, 18.2x, and 16.5x, respectively, as of October 27.

The mean 12-month price target by 19 analysts covering Kate Spade is $21.36, which suggests the stock could gain about 28% over the next one-year period. 14 of the 18 analysts have recommended a “buy” on the stock, and five have recommended a “hold.” None of the analysts have given a sell recommendation.

This series

The current series is a preview of Kate Spade’s 3Q16 results. In the present series, we’ll discuss the company’s key performance drivers, understand its fiscal 2016 guidance, and look at Wall Street recommendations on the stock. Let’s start with the company’s performance in the second quarter of 2016.

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