Mizuho Securities Initiates Coverage On Kate Spade

Mizuho Securities initiated coverage on Kate Spade & Co KATE Thursday with a Neutral rating and $28 price target.

Analyst Betty Chen noted that "given tepid mall traffic thus far, earnings may see near-term pressure as KATE faces slowing comp momentum against its toughest compares TY in 2H.

"Furthermore, management’s plans to gradually pull back on promotional cadence may prove difficult given mixed consumer spending amidst rising competition and goal to grow market share.

"Additionally, the slower than expected ramp of Saturday combined with plans for additional roll out abroad may continue to impact margins."

The report observed that "the total store count of ~230-270, from 197 at 2Q-end, is expected to drive $150-225mm in incremental sales domestically."

Chen believed "KATE will continue its solid wholesale growth via additional styles in important categories such as handbags, leather goods, and ready-to-wear. KATE looks to build upon home décor and casual footwear categories with a target of an additional ~$300-375mm of incremental wholesale revenue globally by 2016."

Kate Spade & Co closed at $27.35 Wednesday, up 1.98 percent.