Although Kate Spade & Co KATE delivered extremely disappointing 2Q results, the company continues to face attractive opportunities for EPS growth, Citi’s Kate McShane said in a report. She maintained a Buy rating on the company, while reducing the price target from $33 to $23.
Analyst Kate McShane mentioned that Kate Spade’s 2Q comps were adversely impacted by:
- Lower spend by foreign tourists
- Slower product transition, leading to insufficient stock in a new collection
- An increasingly promotional environment, coupled with a lower sale event performance
- Weaker consumer spending in Japan.
Performance Ahead
Management indicated that action had been taken to improve performance in the back half, and projected a 300-700 bps improvement in 2H. McShane pointed out that 2Q had been a tough quarter for most retail companies, the back half of the year had gained significant importance and the retail environment would likely continue to be challenging.
The EPS estimates for FY16, FY17 and FY18 have been reduced from $0.80 to $0.67, from $1.08 to $0.99 and from $1.39 to $1.33, respectively.
Opportunities Ahead
The analyst commented that Kate Spade continued to have “strong opportunities for EPS growth in several areas,” enumerating them as:
- Improving brand recognition and new customer acquisition opportunities
- Productivity improvement
- Store growth
- International sales growth
- Margin expansion
Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
