Kate Spade: What To Expect

In a report published Tuesday, Wunderlich analysts maintained a Buy rating on Kate Spade & Co (NYSE: KATE), with a price target of $39, ahead of the company's 1Q15 results.Kate Spade is scheduled to report its results on May 7. "In a sea of flailing handbag business models and worrying over discounting in general, we believe Kate Spade gets "it" - that unique offerings and limited distribution will drive strong returns and result in solid top- and bottom-line results," the analysts said.Wunderlich expects the company's 1Q "to be messy but results to be solid." The performance is likely to be impacted by the charges related to the closures of Kate Spade Saturday and Jack Spade. Excluding these charges, the core handbag business is likely to post solid results, "with double-digit comp expansion and solid margin growth in what historically is the weakest quarter for the company." Kate Spade continues to be "the prime beneficiary" of the continued journey of Coach Inc (NYSE: COH) "to full price irrelevancy," the analysts said, while adding, "…we believe the continued rollout of licensed accessories and the upcoming expansion in home should add an even greater stream of higher margin revenue."The analysts believe that the management knows how to succeed in the high-end accessories business and "is doing the right things to drive solid, visible, high-margin growth with an emphasis on key fashion item, full price selling." The first quarter is relatively unimportant and the company is likely to reiterate its annual guidance of "double-digit top-line growth and material bottom-line expansion," the report mentioned.