Shares of Kate Spade & Company KATE rose 3.8% yesterday as the company’s top and bottom line results for second-quarter 2015 surged year over year. However, both earnings and sales missed the Zacks Consensus Estimate.
Adjusted earnings from continuing operations of 8 cents per share rose 60% from 5 cents reported in second-quarter 2014 but fell short of the Zacks Consensus Estimate of 11 cents.
On a GAAP basis, this Zacks Rank #3 (Hold) company reported earnings of 7 cents per share from continuing operations as against a loss of 11 cents per share recorded in the prior-year period.
Delving Deeper into the Quarter
Net sales increased 5.7% year over year to $281 million, lagging the Zacks Consensus Estimate of $294 million. Excluding sales for wind-down operations, net sales grew 20.1% to $273 million. Further, direct-to-consumer comparable sales grew 10% including eCommerce, and 12% excluding the same.
Adjusted gross profit, excluding wind-down operations, jumped 7.7% year over year to $167.9 million, while gross margin expanded 300 basis points (bps) to 61.6%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), excluding wind-down operations, came in at $41.3 million, almost flat with the prior-year quarter.
Segment Details
Kate Spade North America segment’s net sales, excluding wind-down operations, surged 22.4% to $231.8 million, while reported sales were up 13.1% to $235.7 million. Adjusted EBITDA, excluding wind-down operations, came in at $38.4 million. Including the same, adjusted EBITDA was $37.8 million compared with $32.2 million in the year-ago quarter.
At the Kate Spade International segment, excluding wind-down operations, net sales were up 16.1% year over year to about $36.2 million. On a reported basis, net sales were down 17.3% to $40.7 million. Adjusted EBITDA, excluding wind-down operations was $2.4 million, while including the same it was $3.4 million.
Net sales for the Adelington Design Group segment, adjusting prior-year sales to exclude wind-down operations fell 28.3% to $4.7 million. On a reported basis too, net sales were $4.7 million, a decline of 44.3% from last year, mainly due to decline in Trifari and LIZWEAR brands, offset by strength in Monet brand. Adjusted EBITDA for the segment, excluding wind-down operations, was $0.277 million. Including the same, adjusted loss before interest, taxes, depreciation and amortization was $0.08 million versus adjusted EBITDA of $0.382 million in the year-ago quarter.
Financial Details
Kate Spade ended the quarter with cash and cash equivalents of nearly $231.4 million. As of Jul 4, 2015, the company’s total debt stood at $402.7 million, down marginally from $408.8 million as of Jul 5, 2014. Also, at the end of the second quarter, total stockholders’ equity came in at $164 million.
Outlook
Following the robust adjusted EBITDA for the second quarter, Kate Spade raised the lower-end of its adjusted EBITDA guidance range for 2015. The company now estimates adjusted EBITDA in the range of $190–$200 million, compared with the previous guidance range of $185–$200 million.
Stocks to Consider
Some better-ranked stocks in the apparel-shoe industry are Aeropostale Inc. ARO, Foot Locker Inc. FL and DSW Inc. DSW, each carrying a Zacks Rank #2 (Buy).
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