Kate Spade may be losing its grip in the retail sector.
After unstellar stock results, plummeting sales and declining consumer activity, the troubled brand is exploring a possible sale and holding early discussions with an investment bank and interested buyers, the Dow Jones reported.
After Dow Jones released a report on Nov. 4, Kate Spade shares went up 25 percent to $18. Investors said that the potential sale could surpass Kate Spade’s recent price and potentially improve the company’s financial situation.
A few years ago, Kate Spade was one of the most favored accessories and apparel brands among shoppers. Today, the label isn’t performing well compared to its rivals, including Coach and Michael Kors. Kate Spade attempted to slash prices to re-ignite consumer engagement, but such efforts haven’t facilitated a financial turnaround for the brand.
In November, one of Kate Spade’s investors, Caerus Investors, submitted a letter to Kate Spade’s Board of Directors and urged them to consider selling the company.
“While we have long admired the growth prospects for the Kate Spade brand, we have become increasingly frustrated by the management’s inability to achieve profit margins comparable to industry peers,” the letter said. “We think the brand equity is extremely strong but better suited in the hands of a larger, more experienced, global player that can more effectively grow the business.”
Kate Spade’s potential sale follows the brand’s third quarter results. In the quarter ended Oct. 1, Kate Spade experienced a 14 percent jump in net sales to $39 million. Despite a competitive retail environment and declining shopper traffic, Kate Spade achieved a direct-to-consumer comparable sales growth of 6.7 percent from its digital business. Quarterly profits increased to $29.6 million and 23 cents per diluted share, which was up from $2.3 million and 2 cents per diluted share in third quarter 2015, but holiday pricing pressures caused the brand’s stock to tumble to 8.14 percent on Nov. 2.
According to the Dow Jones report, Kate Spade is valued at only $1.9 billion. Due to its size, Dow Jones noted that other luxury companies could find the brand a potential boon for future market growth. Analysts also said other major retailers, including Coach and Michael Kors, could potentially acquire Kate Spade in the future.