By Dow Jones Business News,
August 12, 2014, 01:23:00 PM EDT
By Joshua Jamerson
Kate Spade & Co. said its second-quarter loss narrowed, driven by a surge in demand, but narrower margins spooked
Wall Street. But its shares were down more than 20% in midday trading.
Like rival Michael Kors Holdings Ltd., Kate Spade said its margins narrowed, driven by discounting due to excess
inventory at its lower-priced Kate Spade Saturday brand. Margins narrowed to 58.6% from 61.8% a year earlier.
Kate Spade shares, which had climbed about 9% in premarket trading, later sank as investors looked beyond the sales
The former Fifth & Pacific Cos. and Liz Claiborne Inc. became Kate Spade in February. Former chief William McComb
narrowed the company's focus by emphasizing more on the namesake handbag brand and shedding dozens of others--most
recently Lucky Brand and Juicy Couture--over the past eight years.
The company--alongside Michael Kors--has cut into competitor Coach Inc.'s share of the handbag market. Michael Kors
reported earlier this month that profit and sales climbed, though increased markdowns were a drag on margins. Coach,
meanwhile, reported its earnings declined sharply as North American sales fell and costs rose.
Overall, Kate Spade posted a loss for the quarter ended July 5 of $4.4 million, or three cents a share, compared
with a loss of $43.1 million, or 36 cents a share, a year earlier. Excluding acquisition-related costs and other items,
earnings from continuing operations--which exclude Juicy Couture and Lucky Brand--were five cents a share, versus a loss
of eight cents a share a year earlier.
Analysts polled by Thomson Reuters had expected the company to break even.
Net sales rose 49% to $266 million, easily topping the $238 million expected by the Street.
During the quarter, the company split its former Kate Spade reportable segment in two--Kate Spade North America and
Kate Spade International. The segments posted sales growth of 55% and 54%, respectively, the company said.
Selling, general and administrative expenses increased 28% to $146 million.
Write to Joshua Jamerson at firstname.lastname@example.org
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