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Wolfe Research Downgraded Kate Spade to ‘Peer Perform’

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Price movement

Kate Spade & Company (KATE) has a market cap of $2.2 billion. It fell 2.2% and closed at $16.35 per share on November 23, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -5.1%, -1.6%, and -8.0%, respectively, on the same day. Kate Spade is trading 0.19% below its 20-day moving average, 5.4% below its 50-day moving average, and 20.0% 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 Spade. VB’s YTD price movement was 17.1% on November 23.

The market caps of Kate Spade’s competitors are as follows:

  • Gap (GPS) – $12.5 billion
  • Coach (COH) – $10.8 billion
  • Fossil Group (FOSL) – $1.8 billion

Kate Spade’s rating

On November 23, 2016, Wolfe Research downgraded Kate Spade & Company’s rating to “peer perform” from “outperform.”

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Performance of Kate Spade in fiscal 3Q16

Kate Spade & Company reported fiscal 3Q16 net sales of $316.5 million—a rise of 14.1% compared to net sales of $277.3 million in fiscal 3Q15. The company’s gross margin narrowed by 180 basis points and its operating margin rose by 730 basis points in fiscal 3Q16—compared to the same period last year.

Its net income and EPS (earnings per share) rose to $29.6 million and $0.23, respectively, in fiscal 3Q16—compared to $2.3 million and $0.02, respectively, in fiscal 3Q15.

Kate Spade’s cash and cash equivalents and inventories rose 40.2% and 5.7%, respectively, in fiscal 3Q16—compared to fiscal 3Q15. Its current ratio rose to 2.8x and its debt-to-equity ratio fell to 2.0x in fiscal 3Q16—compared to 2.0x and 4.3x, respectively, in fiscal 3Q15.

Projections

Kate Spade made the following projections for fiscal 2016:

  • net sales of $1.37 billion–$1.40 billion
  • adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $242 million–$260 million
  • EPS of $0.63–$0.70 with the use of a normalized tax rate of 40%
  • capital expenditures of $65 million–$70 million

Next, we’ll take a look at Philips (PHG).

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