Kate Spade Q3 Earnings Top, Revenues Lag; Outlook Intact

After ending the second quarter of 2015 on a soft note, Kate Spade & CompanyKATE posted impressive earnings in the third quarter of 2015. The company reported adjusted earnings from continuing operations of 6 cents per share that surpassed the Zacks Consensus Estimate of 4 cents. However, earnings remained flat year over year.

Meanwhile, on a GAAP basis, this Zacks Rank #3 (Hold) company reported earnings of 4 cents per share from continuing operations compared to earnings of 2 cents recorded in the prior-year quarter.

The Quarter in Details

Net sales increased 10.7% year over year to $277 million but fell short of the Zacks Consensus Estimate of $289 million. Excluding sales for wind-down operations, net sales improved 26.1% to $275 million. Further, direct-to-consumer comparable sales grew 16% including eCommerce, and 11% excluding the same.

Adjusted gross profit, excluding wind-down operations, came in at $168.6 million, while gross margin contracted 160 basis points (bps) to 61.2%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), excluding wind-down operations, came in at $36 million, almost flat with the prior-year quarter.

Segment Details

Kate Spade North America segment's net sales, excluding wind-down operations, improved 25.5% to $228 million, while reported sales were up 18.5% to $228 million. Adjusted EBITDA, excluding wind-down operations, came in at $31 million. Including the same, adjusted EBITDA was $31 million compared with $21 million in the year-ago quarter.

At the Kate Spade International segment, excluding wind-down operations, net sales climbed 27.5% year over year to $41 million. On a reported basis, net sales were down 15.8% to $43 million. Adjusted EBITDA, excluding as well as including wind-down operations, stood at $5 million.

Net sales for the Adelington Design Group segment, adjusting prior-year sales to exclude wind-down operations, increased 40% to $6 million. On a reported basis too, net sales totaled $6 million, reflecting a 10% decline from the year-earlier quarter. Adjusted EBITDA for the segment, excluding as well as including wind-down operations, was $1 million.

Financial Details

Kate Spade ended the third quarter with cash and cash equivalents of nearly $219.7 million. As of Oct 3, 2015, the company's long-term debt stood at $397.1 million, down from $401.4 million as of Oct 4, 2014. Also, at the end of the third quarter, total stockholders' equity was $173.4 million.

Outlook

Kate Spade reiterated its sales guidance for 2015 at the range of $1.2-$1.275 billion and adjusted EBITDA at $190-$200 million, each excluding wind-down results.

Stocks to Consider

Some better-ranked stocks in the apparel-shoe industry are American Eagle Outfitters Inc. AEO , Genesco Inc. GCO and L Brands, Inc. LB . While American Eagle Outfitters sports a Zacks Rank #1 (Strong Buy), Genesco and L Brands hold a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.

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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 Nasdaq, Inc.

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