Fifth & Pacific Earnings Miss, Alters Name - Analyst Blog


Fifth & Pacific Companies, Inc. 's ( FNP ) fourth-quarter fiscal 2013 adjusted earnings from continuing operations soared by a whopping 275% to 15 cents per share, while it fell substantially short of the Zacks Consensus Estimate of 29 cents. The company's GAAP earnings for the fourth quarter came in at $1.29 per share, surging 207.1% year over year.

Net sales for the quarter, excluding Lucky Brand and including Juicy Couture rose 22.3% year over year to $427.0 million, missing the Zacks Consensus Estimate of $537.0 million. Sales were augmented by a strong performance at Kate Spade, partly offset by a weak performance at Juicy Couture and Adelington Design Group segments.

For the fourth quarter, gross profit margin expanded 60 basis points (bps) year over year to 56.8%, backed by impressive gross profit at the Kate Spade Segment, partly offset by a decline in gross margin at Juicy Couture.

Selling General & Administrative Expenses (SG&A) for the quarter escalated 44.1% to $254.0 million and as a percentage of sales it increased 910 bps to 59.6%. SG&A was mainly impacted by the company's expenses related to streamlining activities, closing down brands, acquisitions and other costs incurred at the Kate Spade segment. This was partly compensated by a decline in expenses at the Adelington Design Group and Juicy Couture segments.

During the quarter, the company's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), net of foreign currency transaction adjustments, excluding Lucky Brand and including Juicy Couture advanced 35.4% to $65 million.

Full Year 2013

For the full year, the company's adjusted loss from continuing operations narrowed down to 15 cents a share from the year-ago loss of 31 cents. However, it was wider than the Zacks Consensus Estimate of a loss of 1 cent a share. Net sales for the year, including Juicy Couture and excluding Lucky Brand, jumped 21.2% to $1.3 billion, yet again missing the Zacks Consensus Estimate of $1.7 billion.

The company's results were primarily driven by the remarkable performance of its Kate Spade brand, which even amidst a highly competitive environment delivered a 30% growth in direct to consumer comparable sales. Further, Fifth & Pacific was well on track to shut down its Juicy Couture business.

Segment Details

Kate Spade  net sales surged 48% to $256.0 million, benefitting from all its operations. Its adjusted EBITDA increased 48.8% to $64 million during the fourth quarter.

At the Juicy Couture segment, net sales dipped 1.4% year over year to $152.0 million, as a result of a fall in specialty retail, wholesale and licensing businesses, partly compensated by a rise in its ecommerce and store operations. Adjusted EBITDA for the segment came down to $10 million from $12 million in the fourth quarter of 2012.

Adelington Design Group delivered a 13% decline in net sales to $20.0 million. Adjusted EBITDA plunged 28.7% to $5 million in the quarter.

Financial Details

Fifth & Pacific ended the year with cash and cash equivalents of $130.2 million. Total debt at the year end was $394.0 million compared with $406.0 million at the end of last year. The company used up $5 million in cash for continuing operations during the year.

Other Developments

Fifth & Pacific sold its Lucky Brand Jeans segment on Feb 3, 2014, to a partner of Leonard Green & Partners L.P for $225 million, following which it will be counted under the company's discontinued operations. Also, the company is on track to dispose its Juicy Couture brand. These divestitures will make Fifth & Pacific a single-brand company focused on extracting the best from its core Kate Spade brand.

Along with the earnings results, the company's former Chief Executive Officer (CEO) Mr. McComb declared Craig Leavitt as the company's next CEO. Going forward, Mr. McComb is optimistic about the prospects of its Kate Spade brand and he believes that the company's new CEO and management will capitalize on the brand's strengths in 2014.

Taking cue from this positive take on the brand, the former CEO announced that the company's name will be altered to "Kate Spade & Company", which will trade under the ticker "KATE" from Feb 26, 2014.

Other Stocks to Consider

Currently, Fifth & Pacific holds a Zacks Rank #4 (Sell). Other better-ranked stocks in the apparel-shoe sector include Christopher & Banks Corporation ( CBK ) with a Zacks Rank #1 (Strong Buy), along with Finish Line Inc. ( FINL ) and Li Ning Company Limited ( LNNGY ) carrying a Zacks Rank #2 (Buy).

CHRISTOPHER&BNK (CBK): Free Stock Analysis Report

FINISH LINE-CLA (FINL): Free Stock Analysis Report

FIFTH PACIFIC (FNP): Free Stock Analysis Report


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CEO , CBK , FINL , FNP , LNNGY

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