KATE ran a one day Flash Sale over the weekend offering up to 75% off items. It's not a huge change in promotional posture -- the company ran a Theme Sale Gifts $99 and Under last year, and a Flash Sale at this same time in 2013. But it tells us a few things…
1) KATE has been in 'Flash Sale pruning mode' now for the better part of 1-year. At the end of 3Q the company had run 5 Flash Sales vs. 8 in 2014. Quarter to date the count is now up to 3 vs. 2 in 4Q14, and 3 in 4Q13. To date the company has stuck to plan in an effort to promote quality of sale events, but it makes us wonder if KATE management is staring at the 28% comp it put up in 4Q14 and promoting to drive the top line.
2) Flash Sales for KATE are gross margin accretive. That's counterintuitive, we know, but because the products are specially made for this channel it's actually a positive gross margin event, assuming of course that there isn't a whole lot of full price merchandise being discounted in order to clear up the balance sheet, which we don’t think is the case.
3) We think that KATE has done an exceptional job year to date cleaning up its distribution and sales posture in both the company owned and wholesale channel. The company is starting to lap those changes now, and 2016 should see a similar amount of events when compared to 2015, i.e. no more top line headwind. That coupled with the two handfuls of licenses launched in 2015/launching in 2016 and International distribution/JV agreements equals a lot of tailwinds in 2016.
4) If there is any red flag for us from the addition of this Flash Sale it is the quarter to date e-commerce trends. Last year the company put up a mid-40's e-comm comp (assuming a 20% e-comm weighting). We saw the YY change in Traffic Rank, which takes into account page visits per user and unique visits vs. the internet in aggregate, inflect negative in late November. There are still plenty of drivers on the comp side (especially with the addition of the Juicy outlet door conversions which are worth a couple hundred bps to comp) that we are not overly concerned with the quarter that will close at the end of December.