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Kate Spade Reports Solid Quarter, But Is Still Fighting the 'Purse Wars'

Aug 13, 2014 10:29 AM EDT
Kate Spade New York
(Photo : Instagram )

Kate Spade is having an interesting week. The company reported a near-50% surge in second quarter revenue Tuesday morning, but during the company's conference call with analysts, shares started selling off in droves. There is a lot of interest in the brand, but that may be mainly due to their tireless promotions and sales. 

Kate Spade reported $266 million for its second quarter revenue, a 48.7% increase over the year-ago period. This figure definitely surpassed analyst expectations. Kate Spade said gross profit as a percentage of sales -- the amount of money the company makes on items that customers buy -- fell to about 58% in the second quarter, down from the same period last year. 

"Despite a more promotional retail environment, Kate Spade & Company had another strong quarter, with sales increases coming across both our North American and International segments," Craig Leavitt, Kate Spade CEO, said in a statement Tuesday morning. 

However, Kate Spade is in the tough market of luxury retail and is competing with stalwart brands like Michael Kors and Coach. 

The brand was forced to move sales earlier in the year in order to compete in the "purse wars" with its rivals. "We're not going to sit on the sidelines while there's meaningful promotional activity amongst retailers and competitors," said George Carrara, Kate Spade's chief operating officer on a call with analysts. 

But Kate Spade rivals like Michael Kors and Coach only sport valuations in the midteens -- far below Kate Spade's. Kate Spade is perfectly appealing to what is known as the "splurge customer" even though it is considered to be in the luxury market. Leavitt described their ideal customer as: "(She) spends more than $500 on a single item, buys multiple items each time she shops and makes multiple purchases through the year."   

Kate Spade is looking to quadruple retail sales to $4 billion as a global lifestyle brand selling everything from apparel to home goods. Leavitt is focusing on categories with ready appeal, including fragrances, jewelry, watches and sunglasses.  The brand recently took a foray into Japenese focused style as well. 


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