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Kate Spade’s Q1 Sales Decline

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Kate Spade New York Spring 2016 ad campaign

Kate Spade released its results for the first quarter of 2017 but continued to hedge on possible takeover bids or other potential “strategic alternatives” for the business.

The handbag label reported net sales of $271 million for the quarter, ended April 1. That’s a 1.2% decrease from the first quarter of 2016. Net sales for Kate Spade North America decreased by 0.6% to $217 million. EBITDA was $23 million for the quarter versus $25 million in the same period of 2016. Net sales for the international business were flat at $49 million, and EBITDA was $8 million compared to $9 million for the previous year period.

Comparable stores sales dropped by 2.4% year on year, a decrease that was cushioned by double-digit gains in e-commerce sales.

Gross profit was up to 63.2% for the quarter compared to 61.8% in the same period last year. SG&A increased from $152 million for the first quarter of 2016 to $165 million during this quarter due to $7 million of store impairment charges and $2 million in fees and expenses related to the ongoing review of its strategic alternatives.

Income totaled $1 million, or $0.01 per diluted share, compared to $11 million, or $0.08 per diluted share during the first quarter of 2016.

“We delivered over 140 basis points of gross margin expansion in the first quarter driven by operational efficiencies and our continued focus on quality of sale amidst a highly promotional environment. In addition, we continued to generate robust cash flow over the past twelve months and ended the quarter with $422 million in cash,” said George Carrara, president and chief operating officer of Kate Spade & Company. “We delivered these solid results despite the factors that negatively impacted our first quarter performance.”

The company’s plans to entertain offers for a sale were an open secret for weeks prior to its announcement in February. Since then, it’s been reported that the firm has been in talks with Coach, though neither party will address the nature of those discussions, if they’re ongoing or how close a deal might be.

Due to the ongoing review, no guidance was provided.

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