By Joshua Jamerson
Kate Spade & Co. said its second-quarter loss narrowed,
driven by a surge in demand, but narrower margins spooked Wall
Street. But its shares were down more than 20% in midday
trading.
Like rival Michael Kors Holdings Ltd., Kate Spade said its
margins narrowed, driven by discounting due to excess inventory at
its lower-priced Kate Spade Saturday brand. Margins narrowed to
58.6% from 61.8% a year earlier.
Kate Spade shares, which had climbed about 9% in premarket
trading, later sank as investors looked beyond the sales
increase.
The former Fifth & Pacific Cos. and Liz Claiborne Inc.
became Kate Spade in February. Former chief William McComb narrowed
the company's focus by emphasizing more on the namesake handbag
brand and shedding dozens of others--most recently Lucky Brand and
Juicy Couture--over the past eight years.
The company--alongside Michael Kors--has cut into competitor
Coach Inc.'s share of the handbag market. Michael Kors reported
earlier this month that profit and sales climbed, though increased
markdowns were a drag on margins. Coach, meanwhile, reported its
earnings declined sharply as North American sales fell and costs
rose.
Overall, Kate Spade posted a loss for the quarter ended July 5
of $4.4 million, or three cents a share, compared with a loss of
$43.1 million, or 36 cents a share, a year earlier. Excluding
acquisition-related costs and other items, earnings from continuing
operations--which exclude Juicy Couture and Lucky Brand--were five
cents a share, versus a loss of eight cents a share a year
earlier.
Analysts polled by Thomson Reuters had expected the company to
break even.
Net sales rose 49% to $266 million, easily topping the $238
million expected by the Street.
During the quarter, the company split its former Kate Spade
reportable segment in two--Kate Spade North America and Kate Spade
International. The segments posted sales growth of 55% and 54%,
respectively, the company said.
Selling, general and administrative expenses increased 28% to
$146 million.
Write to Joshua Jamerson at joshua.jamerson@dowjones.com
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