Kate Spade & Co.’s shares dove 10.4 percent on the New York Stock Exchange Thursday after the company reported higher losses for the first quarter.
The firm’s shares fell to $29.16 as it struggled with the balance between growing sales but maintaining a good margin. Craig Leavitt, Spade’s chief executive officer, told WWD that the goal is to decrease the brand’s reliance on endless promotions to build “quality” sales at full price.
“The overall element of focusing on building quality of sale is a critical component for us,” he said.
Leavitt explained that with the pullback on flash sales, now when the company has a promotion, the overall results generated have trended better than when there were multiple sales events.
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He also noted that full-price sales at company stores have improved and that the company is decreasing its participation in promotional events in other distribution channels, such as those offered by department stores. While the company has been discussing this with its wholesale accounts, “it takes time to execute,” he said. The change in how many promotional events Kate Spade participates in is part of the company’s “multichannel approach to building quality of sale. This is a very important part of our strategic growth,” Leavitt said.
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On Wednesday, Tumi Holdings Inc., when it reported first-quarter results, also said that it is “ taking steps to decrease its participation in promotional events to protect brand equity over the long term.” And Coach Inc. for the last few quarters has also reduced the number of sales events and e-outlet sales at its stores and online.
In the near term, however, Kate Spade continues to face a margin squeeze. The company said the net loss for the three months ended April 4 was $55.2 million, or 43 cents a diluted share, against net income of $46.2 million, or 37 cents, a year ago. On an adjusted basis, excluding certain wind-down charges, diluted EPS was 3 cents a share. On a continuing operations basis, the loss widened to $54 million, or 42 cents, compared with a year-ago loss of $38 million, or 31 cents.
Net sales rose 14.2 percent to $255.3 million from $223.6 million. The company said comparable store sales grew 6 percent, and were up 9 percent including e-commerce for all direct-to-consumer sales. Excluding the wind-down of certain business operations, gross profit as a percentage of sales was 62 percent.
Leavitt said during the telephone interview that the company’s goal of getting to $4 billion in sales is “realistic.” Although Kate Spade hasn’t disclosed publicly what its timeframe is to reach $4 billion in sales, Leavitt emphasized that the company “has significantly grown sales and profitability over the last year.”
The company said the latest quarterly results were boosted by growth in women’s handbags and small leather goods, which is the core component of the women’s pillar. Other pillars of growth include men’s, with the Jack Spade assortment; children’s, which includes the introduction of baby and layette in August, and home.
The company also sees international as an area of expansion. It opened its fourth global flagship, this one in Hong Kong, and made available an e-commerce site in Singapore.
Separately, Kate Spade said it has a new distribution agreement with Exclusive Brands International SA for the expansion of the Kate Spade New York brand in Latin America. Exclusive Brands now has distribution rights across 17 territories throughout Central and South America and the Caribbean.
Because of the new strategic partnership, Kate Spade will no longer operate directly in Brazil. It will also work with Exclusive Brands to evaluate the Brazilian business. Kate Spade has a separate agreement with Grupo Axo in Mexico.