Kate Spade Stock Tumbles On Q2 Earnings Miss & Lowered Outlook

Kate Spade & Co.’s shares are feeling the effect of the company’s Q2 performance and downward-adjusted outlook, announced before the market open Wednesday. As of 11: 30 a.m. ET, the firm’s stock remained down over 21 percent.

The company, which has been a Wall Street favorite in recent months as other handbag makers suffered slowing momentum, saw its reported Q2 net income gain over 200 percent year-over-year, to $26.8 million, or 19 cents per diluted share. Adjusted earnings per share were 11 cents, missing market watchers’ forecast for diluted EPS of 14 cents.

Reported revenues advanced 14 percent, to $319.7 million. Analysts had predicted net sales of $318.6 million.

Direct-to-consumer comparable sales grew 4 percent during the period.

Kate Spade CEO Craig Leavitt said slowing tourism had hurt the brand’s earnings during the quarter.

“We continue to be impacted in our bricks-and-mortar channels, where we saw lower traffic and transaction size in our tourist-dependent stores versus the first quarter, given the continuing FX headwinds,” Leavitt said during a conference call.

The CEO also noted that the outlet channel has become more promotional for the brand than anticipated, creating ongoing margin pressure.

“In addition, the quality of outlet traffic, measured in average spend per transaction, continues to diminish in our tourist-dependent locations,” Leavitt said. “Given this behavior, we have increased our promotions in this channel as we work to maintain market share.”

Leavitt said that while the company has “implemented specific changes” to help mitigate some challenges, such as slowing tourism and consumer shifts in markets, particularly in Japan, management has been compelled to lower the company’s full-year guidance.

For the fiscal year, Kate Spade & Co. now expects sales to come in at $1.37 billion to $1.4 billion, with comparable sales growing by high single digits to low double digits, with an adjusted EBITDA of $242 million to $260 million.

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