By Lisa Beilfuss

Kate Spade swung to a better-than-expected profit in its latest quarter as the retailer's move to de-emphasize the handbag continues to pay off.

Shares in the company, down 39% this year through Wednesday's close, gained 4% in premarket trading.

Kate Spade, the former Fifth & Pacific Cos. and Liz Claiborne Inc., has shifted its focus amid weakness in a saturated handbag market. Rivals including Michael Kors Holdings Ltd. and Coach Inc. have similarly felt the pinch as shoppers spend less on purses and increasingly opt for smaller, less expensive options when they do spring for a new bag. On Wednesday, Kors pointed to a smaller-bag trend when it cut sales and profit guidance.

To cope, Kate Spade has shed dozens of labels--such as Lucky Brand and Juicy Couture--and announced pans to shutter its Kate Spade Saturday and Jack Spade stores as it seeks to focus on its flagship Kate Spade New York brand. Meanwhile, Kate Spade is edging into more attractive markets like athleisure through its Beyond Yoga brand.

Chief Executive Craig Leavitt credited the 11% jump in third-quarter sales to diversified offerings and the introduction of new product categories. The increase came even as the retailer continued to pull back profit-eating promotions. Kate Spade's profit margin slipped to 61.2% from 62.8% a year earlier, but year-to-date it edged up to 61% from 60.8%.

Overall, Kate Spade reported a profit of $2.3 million, or 2 cents a share, up from a loss of $9.13 million, or 7 cents, a year earlier. Excluding discontinued operations and other items, earnings per share were 6 cents. A year earlier, the company broke even on an adjusted basis.

Revenue increased to $277.3 million from $250.4 million. Analysts projected 4 cents in adjusted per-share earnings on $280 million in revenue, according to Thomson Reuters.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

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(END) Dow Jones Newswires

November 05, 2015 08:21 ET (13:21 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
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