KATE absolutely hates being public – but it will be public for longer to get the price it should get. I like KATE standalone here, and these numbers support #HighEndAccelerating more than people think. I’d buy COH in a heartbeat if it gets KATE under $25 (which everyone will say is way too high).
LET ME START WITH THE BEAR CASE
There’s no sugar coating it…this KATE headline is terrible.
- Comp -2% -- not terrible for your average run of the mill brand, but this is KATE’s first negative comp on record.
- E-comm up around 18% by our math.
- Square footage still up 11%, which is respectable. But as with any concept that comps negative, the next question is always “then why is it adding square footage?”. My math says it SHOULD grow square footage over 10% -- but that does not matter today.
What I LIKE about the print is that…
- GM up 140bps – that’s a big plus
- SG&A up 8.4% -- that’s a big acceleration from the 1.4% we saw last quarter.
- Inventories in check
IF a company was trying out a fire sale, wouldn’t it drive comp higher – even if at the expense of gross margin? Maybe. That’s probably debatable.
But it would almost NEVER accelerate SG&A growth by 600bps. That’s what good brands do when comp comes under pressure. But not companies that are going to give away the farm while bowing to near term deal economics.
Here's one thing I missed initially -- probably bc I hate blaming results on timing that the Street (ie Me) should have proactively modeled. The Easter shift -- by my math, hurt the quarter by anywhere between 500bps and 1,000bps. I know -- you can drive a truck through that estimate. But there's a bull and a bear case, as always (even with assumptions behind math). But even the Bear math is Bullish for the underlying results. At 800bps benefit, then the underlying comp goes to 13% from -2.4%, and the 2 year remains consistent at about 8% from 4Q.
TO BE CLEAR…
Today I am as wrong as wrong can be on being Bullish this name.
- I took the view that KATE was playing offense, and was delaying bid til post the earnings report so it could shop better numbers.
- At face value, that is dead #wrong.
- But one thing to consider is that KATE – the company that takes 2x the time as any other company to close its books – is one of the first non-durables out with numbers this reporting period.
- Reporting a number in just 18 days – even if with no forewarning – is ridiculously fast for KATE. It reported on May 4th of last year, fyi. Why would it come out so quickly?
- On top of that, they’re well ahead of COH/KORS results as well.
- In other words, KATE’s bankers are advising the company to get out ahead of everyone else. It’s either front-running (and positioning) ahead of weak numbers (relative to expectations i.e. Easter) from peers, or is committing ‘deal suicide’.
One thing I know…gaming the ‘who is buying and when’ call is not my bag, baby. I also know that I am absolutely not capitulating here when everyone covers on these headlines.
But another thing is for sure… If anyone – especially Coach – is able to buy Kate Spade at a price under $25, I’d want to buy the acquirer on the announcement.
