Facing investor pressure, Kate Spade to explore 'strategic alternatives'

Dive Brief:

  • Kate Spade & Company is exploring “strategic alternatives,” the company said in a press release on Thursday, which also announced its fourth quarter results. The board said it hopes to move in a “timely manner” but has not yet laid out a definitive timeline for a possible sale. Shares of the luxury handbag and accessories retailer jumped 10% in pre-market trading on the news.
  • Kate Spade also announced that Q4 net sales were up 9.8% over the year-ago period, reaching $471 million, just below expectations of $472 million from Thomson Reuters. Net income was $85 million and diluted earnings per share were 41 cents, beating an estimate for 34 cents per share.
  • Rumors of a sale have swirled for months: In January, sources told Bloomberg that luxury retailers Coach, Michael Kors and other unnamed overseas companies were mulling bids for Kate Spade. Those sources said Kate Spade had plans for an imminent formal auction. A Kate Spade spokesperson told Retail Dive the company doesn't comment on rumors or speculation.

Dive Insight:

Investors lost patience with Kate Spade months ago — and it looks like the luxury handbag and accessories retailer is finally giving in to the pressure.

In November, activist firm Caerus Investors penned a letter to the company urging it to consider a sale. "The company's margins are well below peers with material opportunity for expansion as licensing revenues grow and the business scales over time. A potential buyer would be able to realize material cost and revenue synergies over time," the firm wrote in the letter. Since then, the brand has since piqued the interest of at least six potential bidders, Bloomberg reported last month.

Kate Spade's fortunes took a swift downturn earlier this year when the company went from reporting double-digit same-store sales increases to lowering its full year forecast, blaming a slowdown in outlet store sales, which forced deeper discounts. The retailer warned investors in November 2016 that price competition would likely dampen its holiday quarter profits.

CEO Craig A. Leavitt was pleased with the latest quarter’s growth, but acknowledged change is on the way. “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,” he said in a statement. “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." 

Kate Spade has tapped Perella Weinberg Partners as its financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison as its legal counsel.

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Filed Under: Corporate News