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What: Shares of Kate Spade & Company (NYSE: KATE) jumped 28.80% in the month of March,according to data provided by S&PGlobal Market Intelligence, after the luxury apparel specialist reported deceivingly strong fiscal-fourth quarter results.
So what: Specifically on March 1, 2016, Kate Spade & Company revealed fourth-quarter 2015 sales (excluding wind-down operations) rose 13.9% year over year, to $428 million, including 14% growth in direct-to-consumer comparable sales (9% excluding eCommerce). On a reported basis, revenue increased 7.6%, to $429 million.That translated to 33.3% increase in adjusted net income to $41.6 million, or $0.32 per diluted share. Curiously, analysts consensus estimates at the time called for higher revenue of $443.9 million, and slightly greater adjusted earnings of $0.33 per share.
So why did shares climb as much as 6% after the report, then proceed to continue rising as the month progressed? For one, Kate Spade's strong comparable store sales stood in stark contrast to rivals like Coach or Michael Kors . Keeping in mind Coach is still progressing with its own restructuring and turnaround efforts, for example, the iconic handbag maker improved its North American comps last quarter to a4% decline.And Michael Kors, for its part, saw comps fall 0.9% -- though the metric would have risen 2% had it not been for the negative effects of foreign exchange.
Meanwhile, Kate Spade turned in surprisingly high adjusted gross margin of 60.3%, up 60 basis points from the same year-ago period, helped by what management described as their "relentless focus on quality of sales to drive profitability despite a heavily promotional retail landscape."
"Our strong comparable sales results of 14% clearly set us apart within the industry," elaborated Kate Spade CEO Crag Leavitt, "and we are pleased with the momentum we are seeing so far in 2016. Our solid positioning in the highly promotional environment contributed to our double-digit growth and higher than expected gross margins."
Now what: In the end, though Kate Spade technically fell short of Wall Street's expectations last quarter, the market's overwhelmingly positive reaction is a refreshing indicator that -- within reason -- investors are capable of focusing on the quality of a business over just its top- and bottom-line performances in the near term. If Kate Spade & Company can continue delivering where it really counts despite today's difficult retail environment, I see no reason the stock shouldn't have more room to run higher from here.
The article Why Kate Spade & Company Stock Flew 28.8% in March originally appeared on Fool.com.
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