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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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KATE SPADE&CO (KATE): 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 Nasdaq, Inc.


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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