KATE | Quick Thought on EPS

Takeaway: All-in, enough to stop the bleeding. When people start to look at ‘16 numbers, KATE looks downright cheap -- 90% growth and 17x pe.

While not a blowout quarter, KATE did not need one. The 10% comp was solid against a 7% consensus. Just as important to us is that EBITDA margins were +300bp, in-line with our model and double the consensus. Inventories up only 5.6% on 20% adjusted sales growth. The company took up EBITDA guidance by $5mm with a $2.8mm beat on the quarter. Similarly, comp guidance for the year was taken up from HSD to 9-11%, which implies 12% in the back half to get to the top end of the range – a number we think KATE can, and will beat.

 

One concern people might have is that e-comm was flat vs last year. But we were looking for a sequential slowdown due to the significant pull-back in FLASH sales. Also note that store comps accelerated from 6% to 12%, and on a 2-year basis from 14% to 22%. Not many retail stores are putting up a meaningfully accelerating comp trend these days.

 

Is this print enough to get KATE back up to where it was ($32) before the precipitous KORS-inflicted sell-off started in May? Definitely not. But it shows a level of consistency in sequentially improving results at a time when ‘perceived’ competitors are falling apart (note Coach put up a -19% comp yesterday, and threw KORS under the bus on its conference call by implying that it was driving down the category).

 

We think that at a minimum, these results should put a floor on KATE, which otherwise couldn’t seem to find a bottom. Its continued bifurcation in results between KORS and COH should make this much tougher to short, and when people turn the clock forward and look at 2016 numbers, KATE begins to look downright cheap relative to its growth – i.e. 90% growth and a 17x p/e.

 


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