Thursday's Sell Off In Kate Spade Is Buying Opportunity, Citi Says

Following the 5 percent sell off in Kate Spade & Co KATE shares on June 2, Citi’s Kate McShane sees this an attractive entry point into the stock.

McShane maintained a Buy rating on the company, with a price target of $13.

What Management Said

“While the market may be concerned about the impact of tourism trends and promotions, these aren’t new dynamics and we believe KATE is well positioned to continue taking share,” the analyst said.

At Citi’s 2016 Retail Seminar, which was attended by Kate Spade’s CEO Craig Leavitt and President and COO George Carrara, among others, management reiterated its focus on building a diversified business that would drive sustainable long term growth, while maintaining the health of the brand.

“Messaging was consistent with Q1, reflecting that tourism, f/x pressures, and the promotional environment led to headwinds during Q1 that worsened from Q4,” McShane mentioned.

Outlook For 2016

International tourism and ship from store orders affected store comps during Q1, despite which the company was able to deliver 19 percent DT comp for the quarter.

McShane believes that the full year guidance is based on the Q1 trends, with future upside or downside depending on how factors like FX and tourism move through the year.

The analyst noted that the company has “multiple initiatives to drive comps in addition to new apparel lines and categories. Micro-assorting efforts are coming to fruition and develop store profiles based on local consumer habits.”