Kate Spade (KATE) shares rallied on Thursday after the luxury retailer shook up its brands and unveiled 2015 guidance.
The luxury retailer said it expects to see a range of $1.2 billion to $1.28 billion in net sales for 2015. That includes a planned $125 million decrease due in part to a pullback in planned promotions, increased investment in marketing and conversion of its business in Asia into a joint venture.
Excluding the planned decrease, the sales figures bracket Wall Street’s estimate of $1.39 billion in net sales for the year.
In addition to updated guidance, Kate Spade announced an end to physical retail of two of its standalone businesses, the Kate Spade Saturday and Jack Spade brands.
The luxury handbag maker said in a filing with the SEC it will shutter 16 of its company-owned, and three partner-operated Kate Spade Saturday locations during the first half of the year. The brand launched in 2013 as a way to target a younger demographic with a more affordable price point compared to its flagship Kate Spade New York brand.
The company said it will keep the Kate Spade Saturday website and its e-commerce platforms up and running during the transitional phase as it works to incorporate the label and reintroduce it into Kate Spade New York.
The retailer also announced plans to close its 12 company-owned Jack Spade stores in the first half of the year. The brand was intended to target a Kate Spade male demographic.
Due to the closures of the brands, Kate Spade sees a cash restructuring and transition charge of $25 million to $30 million. Included in the total are contracts assignment and termination costs, employee-related costs including severance, and a cash asset impairment charge.
In a statement, Kate Spade CEO Craig Leavitt said the moves follow an effort to increase shareholder value in the mid-to-long term while the company focuses on geographic and product category expansion.
“We are early in our journey as Kate Spade & Company, and we see a clear path to becoming a four billion dollar business at retail,” he said. “By taking these actions, we will be able to accelerate the fulfillment of our lifestyle brand vision, expanding our product categories and reaching customers in all facets of their lives, better positioning us to deliver on Kate Spade New York’s full potential.”
The CEO said since Kate Spade Saturday’s launch in 2013 the company has a better understanding of its customers' weekend style and will work to apply those lessons to its KSNY collection.
He added the brand is “committed” to its focus on the male demographic and sees it as a complement to its booming women’s business.
“With this new approach to distribution, Jack Spade is now better positioned to grow as we broaden our consumer target,” he said.
The company plans to distribute the male-targeted brand in two channels: through retail partners and on its e-commerce platform. The line will include tailored clothing, dress furnishings, sportswear and bags with the aim of becoming a full lifestyle brand.
Shares of Kate Spade popped more than 10% in recent trade on the heels of the brand shakeup and guidance announcements.
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