KATE’s 4Q16 Profitability Improves on Better Cost Controls



EBITDA margin improves on strong expense controls

As discussed, Kate Spade New York (KATE) reported its 4Q16 results on February 16, 2017. The company noted a 28% rise in its adjusted earnings to $0.41 per share on a 10.1% rise in sales to $471 million. While its top line fell short of estimates, Kate Spade beat its earnings per share (or EPS) estimate by $0.06 cents.

KATE’s strict cost-control measures resulted in a 390-basis-point fall in its SG&A (selling, general, and administrative) rate, which fell to 39.1% of its sales in 4Q16 from 43.0% in 4Q15.

As a result, the company reported a 240-basis-point improvement in its EBITDA (earnings before interest, tax, depreciation, and amortization) margin. Its adjusted EBITDA stood at $118 million or 25% of its net sales.

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Kate Spade reports a 40% jump in its 2016 EPS

In 2016, the company’s adjusted EPS rose 40% to $0.70. Its EBITDA margin improved 220 basis points to 18.9%.

George Carrara, president and chief operating officer of Kate Spade, said, “In 2016, we delivered Adjusted EBITDA margin expansion of 220 basis points compared to the prior year, reflecting our ongoing focus on expense management, as well as the benefit of lower annual incentive compensation year-over-year.”

The company didn’t provide guidance for the next year, as it’s currently reviewing strategic alternatives.

How Coach and Kors performed on the bottom line

Both Coach (COH) and Michael Kors (KORS) delivered earnings beats in their most recent quarterly results. Coach reported a 16% rise in earnings to $0.71 per share. Michael Kors’s earnings rose 3.1% to $1.64 per share, beating the consensus estimate by $0.01.

ETF investors seeking to add exposure to KATE can consider the iShares Morningstar Small-Cap Growth ETF (JKK), which invests 0.5% of its portfolio in the company.


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