Splendid Q2 Earnings Push Kate Spade Up to Strong Buy - Analyst Blog

On Aug 14, 2014, Zacks Investment Research upgraded Kate Spade & Co. ( KATE ) to a Zacks Rank #1 (Strong Buy) following its splendid second-quarter 2014 performance as well as raised guidance for the full year.

Why the Upgrade?

On Aug 12, Kate Spade & Co. reported yet another quarter of better-than-expected financial results wherein it's adjusted earnings of 5 cents per share from continuing operations fared better than the Zacks consensus Estimate of a loss of a penny as well as the year-ago quarter's adjusted loss of 8 cents from continuing operations.

Net sales for the quarter, excluding Lucky and Juicy Couture brands rose 48.7% year over year to $266 million, beating the Zacks Consensus Estimate of $229 million. Sales improved due to strong performance at Kate Spade's domestic and international segments.

Bolstered by tremendous financial performance in two back-to-back quarters, the company has raised its full-year 2014 earnings before interest, taxes, depreciation and amortization (EBITDA) and direct-to-consumer comparable sales (DTC comps) growth guidance range.

Kate Spade & Co. now anticipates adjusted EBITDA to come between $120 million and $130 million, up from earlier guidance range of $115-$125 million. Similarly, DTC comps are now projected to grow in the band of 15%-17% compared with the previously projected range of 12%-15%.

Furthermore, the company expressed its intent of splitting the core brand's reportable segments into two: Kate Spade North America and Kate Spade International. This split will allow investors to have a clear understanding of the financial position of the two divisions.

Other Stocks to Consider

Besides Kate Spade & Co., other stocks in the apparel retail sector that are currently performing well include Citi Trends, Inc. ( CTRN ), The Men's Wearhouse, Inc. ( MW ) and The Buckle Inc. ( BKE ). Citi Trends and Men's Wearhouse sport a Zacks Rank #1 (Strong Buy), while Buckle holds 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.

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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