Kate Spade Q2 Loss Narrows as Sales Jump

In What's New, Industry News by Jeff Prine

kspadeNew York—Kate Spade, formerly Fifth & Pacific, narrowed its second quarter loss thanks to strong performances from its North America and international divisions.

For the three month ended July 5, net loss amounted to $4 million. This is compared to a loss of $43 million a year earlier, and is inclusive of a $20 million loss related to discontinued operations.

Saturday Brand Slow to Start

Net sales grew were $266 million, an increase of $87 million, or 48.7% from the second quarter of 2013, reflecting increases in the Kate Spade North America and Kate Spade International segments, partially offset by decreases in net sales within the Adelington Design Group segment. Revenues in Kate Spade North America and international segments grew 55% and 54% respectively.

Kate Spade is separating its former Kate Spade reportable segment into two: Kate Spade North America and Kate Spade International. The Adelington Design Group will be a reportable segment.

Gross margin narrowed to 58.6% in the quarters from 61.8% in the comparable 2013. reflecting the impact of off-price sales margin, primarily driven by the “Kate Spade Saturday brand, due to excess inventory and raw materials disposal that arose in connection with balancing consumer demand with inventory buys in the launch year.”

Sales will increase at a high single-digit percentage rate in the second half, slowing from a 30%  gain in the first half, Chief Operating Officer George Carrara said today on a conference call. The company also may put off its profit-margin goals for 2016 until 2017, in part because its Kate Spade Saturday brand has taken longer than expected to ratchet up.

“Despite a more promotional retail environment, Kate Spade & Company had another strong quarter, with sales increases coming across both our North American and International segments,” said CEO Craig Leavitt. “Adjusted EBITDA for Kate Spade & Company, net of foreign currency transaction adjustments, was $32 million for the second quarter of 2014, a $21 million increase compared to the second quarter of 2013. In addition, we achieved comparable store productivity of $1,477 per square foot over the last twelve months, our 16th consecutive quarter of annualized store productivity growth.”

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