Kate Spade Spikes 11% on Earnings Beat, Confirms Takeover Talk
On Thursday, shares of luxury retailer Kate Spade Co. KATE are spiking, up over 11% in morning trading after the company posted a fourth-quarter earnings beat, as well as confirmed discussion of a potential takeover.
Kate Spade posted earnings of 41 cents per share, surpassing the Zacks Consensus Estimate of 35 cents per share; investors should note this number excludes 25 cents from non-recurring items. Net income was $86 million, up from $61 million in the prior-year period.
Revenues came in at $471 million, lagging behind our consensus estimate of $474 million and increasing 9.8% year-over-year. Kate Spade North America net sales were $407 million, growing 9.5% compared to the fourth quarter of 2015, while Kate Spade International net sales were $59 million, or an increase of 12.4%. Also, direct-to-consumer comparable sales growth was 9.3% for the quarter.
"Our solid fourth quarter and fiscal year performance demonstrate the strength of our differentiated business model, as we continued to gain market share and deliver strong growth despite a challenging retail environment," CEO Craig Leavitt said.
But the biggest announcement of Kate Spade's earnings announcement was the confirmation that it is exploring strategic alternatives for its business. The retailer has been under pressure from activist firm Caerus Investors since November , who has been concerned about Kate Spade's share price decline over the last two and a half years but believes the company would make a "great acquisition candidate."
Kate Spade said it has hired Perella Weinberg Partners as its financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison as its legal counsel. They also made clear that "there can be no assurance" a deal can be made, and it will not provide guidance or any updates on the possible transaction until it has come to a conclusion. Its main competitors, Michael Kors KORS and Coach COH , have even been floated has potential suitors.
Like many of its industry peers, Kate Spade has suffered from declining mall traffic, a strong dollar that has negatively impacted tourist spending, and a sluggish luxury market. For more information on the current retail landscape, listen to Zacks Shopping for Stocks:
Stocks that Aren't in the News…Yet
You are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. Many of these companies are almost unheard of by the general public and just starting to get noticed by Wall Street. They have been pinpointed by the Zacks system that nearly tripled the market from 1988 through 2015, with a stellar average gain of +26% per year. See these high-potential stocks now >>