Kate Spade & Co. is putting its best foot forward as it beckons suitors.
The firm blew past fourth-quarter profit projections and said officially that it was reviewing its strategic options — confirming one of the industry’s worst-kept secrets.
Kate Spade’s stock stood at $22.00 in midday trading on Wall Street.
The company said it is “conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The board plans to proceed in a timely manner, but has not set a definitive timetable for completion of this process.”
That review could result in a sale of the company, which many see as a possible target for Coach Inc. or Michael Kors Holdings.
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The firm added that there’s “no assurance that this review process will result in a transaction or other strategic alternative of any kind.” It also said it doesn’t plan to provide an updates on the progress “until it deems further disclosure is appropriate or required.”
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Betty Chen, analyst at Mizuho Securities, said: “Kate not only serves a slightly younger clientele, but is also a brand still early in its evolution into a $4 billion lifestyle company. Moreover, there may be opportunities to improve Kate’s profitability from scale or synergies as Kate exited [2016] with [earnings before interest and taxes] margin of 13.2 percent versus Coach’s 17.5 percent and Kors’ 21.3 percent.”
The analyst noted that accessories and luggage firm Tumi was acquired by Samsonite for 14 times EBITDA and 3-times sales.
If Kate could get a similar valuation, or 13 to 14 times EBITDA in a takeover, the purchase price would range from $23 to $25 a share.
Official word of the strategic review came as the company posted fourth quarter and full year results for 2016.
For the quarter, net income rose 39.2 percent to $85.5 million, or 67 cents a diluted share, from $61.5 million, or 48 cents, a year ago. Same-store sales were down 1.5 percent, but when including e-commerce sales, direct-to-consumer comparable sales grew 9.3 percent. On an adjusted basis, diluted EPS was 41 cents. Net sales rose 9.8 percent to $470.8 million from $429 million.
The company bested Wall Street’s consensus EPS estimate of 35 cents by 6 cents.
For the full year, net income was $153.6 million on net sales of $1.38 billion.
In a pre-recorded call, chief executive officer Craig Leavitt said the Kate Spade brand was established as a standalone business three years ago to develop the its full potential, which resulted in a “differentiated business model.”
“As a result of our focused, direct-to-consumer and channel agnostic approach, we have grown our business faster than our industry peers and delivered double-digit top and bottom line growth,” the ceo said.
Leavitt touted the company’s annual sales as well as the brand’s more than $2 billion footprint at retail. He reiterated that the brand is on the “path to become a $4 billion brand at retail.”
For the quarter, the ceo said the company’s sales were driven by double-digit growth in the e-commerce business that was partially offset by softness in brick-and-mortar unit.
“We continue to see bifurcation of our price sensitive customers in both our full price and off-price channels,” he said. “In our full price channel, we focused on driving cross channel shopping through our omnichannel approach which included initiatives like buy online, shop from store, online appointment booking and personalized in-store customer experiences.”
George M. Carrara, president and chief operating officer, said the company’s North American sales rose 9 percent on a constant currency basis, while on the international front sales increased 15 percent to $59 million.
He said the company continues to be impacted by challenges in Japan due to macroeconomic pressures, and that its European business grew revenues at a double-digit rate during the quarter.