Kate Spade & Company Reports First Quarter 2017 Results

NEW YORK, April 18, 2017 /PRNewswire/ -- Kate Spade & Company (NYSE: KATE) today announced results for the first quarter ended April 1, 2017.

Net sales for the first quarter of 2017 were $271 million, a decrease of $3 million, or 1.2%, compared to the first quarter of 2016. For the first quarter of 2017 on a GAAP basis, the Company recorded income from continuing operations of $1 million, or $0.01 per diluted share, including $7 million of pretax store impairment charges and $2 million of pretax fees and expenses related to the Company's ongoing review of strategic alternatives. Income from continuing operations for the first quarter of 2016 was $11 million, or $0.08 per diluted share. Diluted earnings per share from continuing operations for the first quarter of 2017 were $0.01 using a normalized tax rate and including $0.04 of after tax impact from the previously noted charges, fees and expenses, compared to $0.05 for the first quarter of 2016. Adjusted EBITDA was $30 million for the first quarter of 2017, including the previously mentioned fees and expenses of $2 million related to the Company's ongoing review of strategic alternatives, compared to Adjusted EBITDA of $35 million for the first quarter of 2016.   

Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company, said: "Despite a challenging retail environment and the later Easter holiday, we achieved yet another quarter of double-digit eCommerce comparable sales growth, which helped offset softness in bricks and mortar stores.  Against this backdrop, we delivered strong gross margin expansion while working to drive profitable growth across our categories and channels. At the same time, our Board of Directors, together with management, continue to evaluate strategic alternatives to further maximize value for our shareholders." 

George Carrara, President and Chief Operating Officer of Kate Spade & Company, added: "We delivered over 140 basis points of gross margin expansion in the first quarter driven by operational efficiencies and our continued focus on quality of sale amidst a highly promotional environment. In addition, we continued to generate robust cash flow over the past twelve months and ended the quarter with $422 million in cash. We delivered these solid results despite the factors that negatively impacted our first quarter performance."

REVIEW OF STRATEGIC ALTERNATIVES

On February 16, 2017, Kate Spade & Company announced that its Board of Directors, together with management and in consultation with Perella Weinberg Partners as its financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison as its legal counsel, is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The Board is proceeding in a timely manner, but has not set a definitive timetable for completion of this process. There can be no assurance that this review process will result in a transaction or other strategic alternative of any kind. The Company does not intend to disclose developments or provide updates on the progress or status of this process or discuss with investors the Company's results of operations until it deems further disclosure is appropriate or required. No forward-looking guidance will be provided at this time. Due to the ongoing review process, the Company will not host an earnings call or webcast for its first quarter results.

FIRST QUARTER RESULTS

Overall Results

Net sales for the first quarter of 2017 were $271 million, a decrease of $3 million, or 1.2%, compared to the first quarter of 2016. First quarter 2017 direct-to-consumer comparable sales declined (2.4)%, or (8.1)% excluding eCommerce. Comparable sales per square foot for kate spade new york stores were $1,516 for the latest twelve months, compared to $1,557 for the twelve month period ended December 31, 2016.

Gross profit as a percentage of net sales was 63.2% for the first quarter of 2017, compared to 61.8% for the first quarter of 2016.

Selling, general & administrative expenses were $165 million in the first quarter of 2017 and $152 million in the first quarter of 2016, or 60.7% and 55.3% of net sales, respectively, including $7 million of store impairment charges and $2 million of fees and expenses related to the Company's ongoing review of strategic alternatives.

Income from continuing operations was $1 million, or $0.01 per diluted share in the first quarter of 2017, compared to $11 million, or $0.08 per diluted share, in the first quarter of 2016. Diluted earnings per share from continuing operations in the first quarter of 2017 using a normalized tax rate were $0.01, compared to $0.05 in the first quarter of 2016.

Segment Highlights

• Kate Spade North America net sales for the first quarter of 2017 were $217 million, a decrease of $1 million, or 0.6%, compared to the first quarter of 2016. Kate Spade North America Segment Adjusted EBITDA was $23 million (10.5% of net sales) for the first quarter of 2017, compared to $25 million (11.2% of net sales) for the first quarter of 2016.
• Kate Spade International net sales for the first quarter of 2017 were $49 million, flat compared to the first quarter of 2016. Kate Spade International Segment Adjusted EBITDA was $8 million (15.9% of net sales) for the first quarter of 2017, compared to $9 million (17.5% of net sales) for the first quarter of 2016.
• Adelington Design Group net sales for the first quarter of 2017 were $5 million, a decrease of $2 million, or 29.3%, compared to the first quarter of 2016. Adelington Design Group Segment Adjusted EBITDA was $1 million (10.5% of net sales) for the first quarter of 2017, compared to $2 million (31.8% of net sales) for the first quarter of 2016.

Store Count Information

PRESENTATION OF NON-GAAP FINANCIAL INFORMATION AND KEY OPERATING METRICS

The income from continuing operations for 2017 and 2016 is presented on a GAAP basis and also adjusted by multiplying pretax income by a normalized tax rate. The Company presents the below-described Adjusted EBITDA measure and the 2017 and 2016 results using a normalized tax rate because it considers them important supplemental measures of its performance and believes they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry.

The attached table, captioned "Reconciliation of Non-GAAP Financial Information," provides a full reconciliation of actual results to the adjusted results. The Company presents Adjusted EBITDA, which it defines as income from continuing operations, adjusted to exclude income tax provision, interest expense, net, depreciation and amortization, net, non-cash impairment charges, losses on asset disposals, non-cash share-based compensation expense and unrealized and certain realized foreign currency transaction adjustments, net. The Company presents non-GAAP financial measures because it uses such measures to monitor the performance of its business on a comparable basis and to determine certain levels of compensation. The Company believes the presentation of these measures enhances the ability of its investors to analyze trends in its business and provides them with a means to compare periods that may be affected by various items that might obscure trends or developments in its business.

The Company evaluates comparable sales productivity based on comparable net sales per average square foot, which is defined as net sales divided by the average of beginning and end of period gross square feet and excludes e-commerce net sales. The Company's policy regarding its calculation of comparable direct-to-consumer net sales is discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of its most recent Annual Report on Form 10-K filed with the SEC on February 23, 2017. The Company presents the above described key operating metrics because it considers them important supplemental measures of its performance and believes they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry. 

ABOUT KATE SPADE & COMPANY

Kate Spade & Company (NYSE: KATE) operates principally under two global, multichannel lifestyle brands: kate spade new york and Jack Spade New York™.  The Company's four category pillars – women's, men's, children's and home – span demographics, genders and geographies. Known for crisp color, graphic prints and playful sophistication, kate spade new york aims to inspire a more interesting life.  The kate spade new york collection includes the Madison Avenue, Broome Street and on purpose labels.  Jack Spade New York offers a timeless and versatile assortment of bags, sportswear and tailored clothing founded on the aesthetic of simple, purposeful design.  The Company also owns Adelington Design Group, a private brand jewelry design and development group.  Visit www.katespadeandcompany.com for more information. 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in, or incorporated by reference into, this press release, future filings by us with the Securities and Exchange Commission ("SEC"), and oral statements made by, or with the approval of, our authorized personnel, that relate to our plans and expectations for future periods are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Words such as "intend," "expect," "contemplate," "anticipate," "believe," "plan," "forecast," "target," "aim," "project," "on track," "are positioned to," "estimate," "may," "will," "should" and variations of such words and similar expressions and phrases are intended to identify such forward-looking statements. You should not place undue reliance on such forward-looking statements, as they are not guarantees of performance or results. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are simply estimates reflecting the best judgment of our senior management and involve, and are subject to, a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from those suggested by the forward-looking statements. These risks are more fully discussed in the "Risk Factors" section and elsewhere in the Company's most recent Annual Report on Form 10-K filed with the SEC on February 23, 2017 and any subsequent quarterly reports on Form 10-Q. All subsequent written and oral forward-looking statements concerning the matters addressed herein and attributable to us or any person acting on our behalf are qualified by these cautionary statements. We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. We undertake no obligation to publicly update or revise any forward‑looking statements, whether as a result of new information, future events or otherwise, except as required by law.

SOURCE Kate Spade & Company