Kate Spade continues to face macro headwinds in 3Q16
Kate Spade (KATE), a leading designer and manufacturer of apparel, women’s handbags, and fashion accessories, reported a 15% rise in sales in 3Q16, with total sales reaching $316.5 million. This growth in sales was primarily a result of the shift in wholesale shipment timing, which benefited the top line by hundreds of basis points. The company expects its sales to normalize next quarter.
Comps and margin metrics continue to disappoint
Sales comps (comparable store sales) stood at 7% in 3Q16. The company witnessed a disconcerting slowdown in comps in 2Q16 to just 4%, as compared to an average of ~15% in the four previous quarters.
Kate Spade’s North America business, which accounted for 82% of the company’s top line, grew 14% in 3Q16. International sales remained robust, rising 19% YoY (year-over-year). This growth was primarily driven by double-digit growth in Europe and Greater China.
The company’s gross margin fell 180 basis points to 59.4% in 3Q16, as compared to 3Q15. Kate continued to face a challenging retail environment along with reduced tourist traffic during the quarter.
In the company’s release, Craig A. Leavitt, Chief Executive Officer of Kate Spade, stated: “We continue to feel the impact of the price-sensitive customer in our full-price and off-price channels but particularly in our outlets where the environment remains heavily promotional, contributing to increased margin pressure.”
ETF investors seeking to add exposure to Kate can consider the iShares S&P Mid-Cap 400 Value ETF (IJJ), which invests 0.18% of its portfolio in the company.
A look at the competitors
Kate Spade’s close competitor and leading handbag manufacturing, Coach (COH), reported its results one day before Kate Spade. The company reported a sales growth of less than 1% and a gross margin improvement of 128 basis points to 68.9% during the quarter.
Michael Kors (KORS), which is slated to report its latest quarterly results on November 10, is expected to report sales growth of 1% YoY and a gross margin of 60%.