Kate Spade & Company Reports Fourth Quarter And Full Year 2016 Results And Is Reviewing Strategic Alternatives

NEW YORK, Feb. 16, 2017 /PRNewswire/ -- Kate Spade & Company (NYSE: KATE) today announced results for the fourth quarter and full year ended December 31, 2016.

Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company, said: "Our solid fourth quarter and fiscal year performance demonstrate the strength of our differentiated business model, as we continued to gain market share and deliver strong growth despite a challenging retail environment. In 2016, we further strengthened our handbag portfolio, introduced new categories to our casual ready-to-wear classifications, and thoughtfully expanded our global store base, opening 52 net new owned and partner-operated stores. At the same time, we remain committed to maximizing value and are exploring strategic alternatives that are in the best interests of our Company and shareholders."

George Carrara, President and Chief Operating Officer of Kate Spade & Company, added: "We are pleased to report top-line growth of 14% for the full-year. In 2016, we delivered Adjusted EBITDA margin expansion of 220 basis points compared to the prior year, reflecting our ongoing focus on expense management, as well as the benefit of lower annual incentive compensation year-over-year. We generated robust cash flow and ended the year in a strong financial position, and with nearly $500 million in cash."

For the full year 2016 on a GAAP basis, the Company recorded income from continuing operations of $152 million, or $1.17 per diluted share, compared to income from continuing operations for the full year 2015 of $22 million, or $0.17 per diluted share. Diluted earnings per share from continuing operations for the full year 2016 were $0.70, using a normalized tax rate, compared to Adjusted diluted earnings per share of $0.48 for the full year 2015. Net sales for the full year 2016 were $1.381 billion, an increase of $139 million, or 11.2%, compared to the full year 2015. Net sales for the full year 2016 increased $166 million, or 13.7%, excluding sales for wind-down operations for the full year 2015. Adjusted EBITDA was $261 million for the full year 2016, compared to Adjusted EBITDA, excluding wind-down operations of $203 million for the full year 2015.   

REVIEW OF STRATEGIC ALTERNATIVES

Kate Spade & Company's 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 plans to proceed 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. Additionally, no forward-looking guidance will be provided at this time.

FOURTH QUARTER RESULTS

Overall Results

Net sales for the fourth quarter of 2016 were $471 million, an increase of $42 million, or 9.8% compared to the fourth quarter of 2015. Net sales for the fourth quarter of 2016 increased $43 million, or 10.1%, excluding sales for wind-down operations for the fourth quarter of 2015. Fourth quarter 2016 direct-to-consumer comparable sales growth was 9.3%, or (1.5)% excluding eCommerce. Comparable sales per square foot for kate spade new york stores were $1,557 for the latest twelve months, compared to $1,615 for the twelve month period ended October 1, 2016, partially impacted by foreign exchange rates.

Gross profit as a percentage of net sales was 59.2% for the fourth quarter of 2016, compared to 60.2% for the fourth quarter of 2015. Gross profit for the fourth quarter of 2015 was 60.3%, excluding the results of wind-down operations.

Selling, general & administrative expenses were $184 million in the fourth quarter of both 2016 and 2015, or 39.1% and 43.0% of net sales, respectively. Excluding the results of wind-down operations and expenses associated with streamlining activities, selling, general & administrative expenses in the fourth quarter of 2015 were $182 million, or 42.4% of net sales.

Income from continuing operations was $87 million, or $0.67 per diluted share in the fourth quarter of 2016, compared to $62 million, or $0.48 per diluted share, in the fourth quarter of 2015. Diluted earnings per share from continuing operations in the fourth quarter of 2016 using a normalized tax rate were $0.41, compared to adjusted diluted earnings per share of $0.32 in the fourth quarter of 2015.

Segment Highlights

• Kate Spade North America net sales for the fourth quarter of 2016 were $407 million, an increase of $35 million, or 9.5% compared to the fourth quarter of 2015. Kate Spade North America Segment Adjusted EBITDA was $107 million (26.4% of net sales) for the fourth quarter of 2016 compared to $91 million (24.5% of net sales) for the fourth quarter of 2015.
• Kate Spade International net sales for the fourth quarter of 2016 were $59 million, an increase of $6 million, or 12.4% compared to the fourth quarter of 2015. Net sales for the fourth quarter of 2016 increased $8 million, or 15.2%, excluding sales for wind-down operations for the fourth quarter of 2015. Kate Spade International Segment Adjusted EBITDA was $10 million (17.1% of net sales) for the fourth quarter of 2016 and $4 million (8.6% of net sales) in 2015. Segment Adjusted EBITDA Excluding Wind-Down Operations was $5 million (9.1% of adjusted net sales) for the fourth quarter of 2015.
• Adelington Design Group net sales for the fourth quarter of 2016 were $6 million, an increase of 2.3% compared to the fourth quarter of 2015. Adelington Design Group Segment Adjusted EBITDA was $1 million (14.4% of net sales) for the fourth quarter of 2016, compared to $2 million (32.3% of net sales) for the fourth quarter of 2015. Segment Adjusted EBITDA Excluding Wind-Down Operations was $1 million (26.6% of net sales) for the fourth quarter of 2015.

Store Count Information

CONFERENCE CALL INFORMATION

The Company will host a pre-recorded conference call at 8:30 a.m. Eastern time today to discuss its financial results for the fourth quarter and fiscal year 2016. The conference call will be limited to prepared remarks from Craig Leavitt, Chief Executive Officer, and George Carrara, President and Chief Operating Officer, and will not include a Q&A session. 

The dial-in number is 1-888-694-4676 with pass code 70910517. The webcast can be accessed via the Investor Relations section of the Kate Spade & Company website at www.katespadeandcompany.com. An archive of the webcast will be available on the website. Additional information on the results of the Company's operations will be available in the Company's Form 10-K for the full year 2016 to be filed with the Securities and Exchange Commission.

PRESENTATION OF GAAP FINANCIAL INFORMATION

As the audit of the Company's 2016 financial statements is not complete, the results presented in this press release are estimated and preliminary, and, therefore, may change. No party has reviewed or audited the preliminary results presented in this release.

PRESENTATION OF NON-GAAP FINANCIAL INFORMATION AND KEY OPERATING METRICS

The income from continuing operations for 2016 and 2015 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 measures, 2016 results using a normalized tax rate and 2015 adjusted results 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.

Adjusted income from continuing operations and Adjusted EBITDA for the fourth quarter and twelve months of 2015 exclude the impact of expenses incurred in connection with the Company's streamlining initiatives (such as severance costs, contract termination costs, asset write-downs and other costs) and brand-exiting activities, acquisition related costs and loss on settlement of note receivable. The adjusted results for 2015 also exclude a $26 million charge related to the termination of certain contracts with the Company's former joint venture partner in Kate Spade China Co., Ltd. In addition to those items, the Company presents its 2015 adjusted results further adjusted to exclude the adjusted results of wind-down operations (Kate Spade Saturday, Jack Spade brick and mortar, Kate Spade Brazil and brand exits in the Adelington Design Group segment). The Company believes that the adjusted results excluding wind-down operations provide a presentation of its 2015 results that will provide investors with a means to compare those results to its 2016 results. The attached tables, captioned "Reconciliation of Non-GAAP Financial Information," provide a full reconciliation of actual results to the adjusted results. The Company presents Adjusted EBITDA, which it defines as income (loss) from continuing operations, adjusted to exclude income tax provision (benefit), interest expense, net, depreciation and amortization, net, expenses incurred in connection with the Company's streamlining initiatives, brand-exiting activities, acquisition related costs, non-cash impairment charges, losses on asset disposals, loss on settlement of note receivable, non-cash share-based compensation expense and unrealized and certain realized foreign currency transaction adjustments, net. The Company also presents Adjusted EBITDA Excluding Wind-Down Operations, which the Company defines as Adjusted EBITDA further adjusted to remove the Adjusted EBITDA of Kate Spade Saturday, Jack Spade brick and mortar, Kate Spade Brazil and the brand exits in the Adelington Design Group segment.  The Company believes this Adjusted EBITDA measure provides a presentation of its 2015 results that will provide investors with a means to compare those results to its 2016 results. 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. References to amounts "on a comparable basis" mean that those amounts exclude the impact of wind-down operations. 

The Company determined that the Kate Spade Saturday, Jack Spade, Kate Spade Brazil and Adelington Design Group initiatives in 2015 did not represent a strategic shift in the Company's operations and therefore did not present these activities as discontinued operations.

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 March 1, 2016. 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.  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 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 March 1, 2016 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.