While stocks fluctuated on the broader market indexes Thursday, shares of Kate Spade & Co. (KATE) rocketed 17.9% higher.
The upscale handbag designer closed the day at $30.96, with more than 11.3 million shares changing hands. The average daily volume is just over three million shares.
What was the catalyst for Thursday’s sudden price spike?
The company was given a boost last Monday by the reiteration of a “Buy” rating from Wunderlich Securities, which has set a $36 price target for the retailer.
But that’s not the only driver of the sudden jolt in shares…
Outclassing the Competition
On Thursday, Kate Spade reported income of $3 million, or $0.02 per diluted share, in its third-quarter results. This compares to a loss of $14 million, or $0.12 per share, for the same period a year ago.
That’s not to say shareholders are happy with the stock, though…
While investors welcomed the sudden price surge, shares of KATE still show a negative year-to-date (YTD) return of 6.02% despite Thursday’s rise.
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With that said, Wunderlich’s rating seems justified, considering that the company’s financials are definitely heading in the right direction.
Upscale Design Meets Killer Fundamentals
Kate Spade reported a net loss of $9.1 million, or $0.07, for the quarter. That compares to a loss of $16.9 million, or $0.14, for the same quarter in 2013.
The company saw its net sales grow to $250.4 million – a 30% year-over-year increase, while also showing a YTD net sales increase of 40%, or $740 million.
Adjusted EBITDA for the third quarter was $21 million, compared to $11 million for the same period in 2013.
The company has also moved aggressively to reduce its total debt load, decreasing its liabilities to $409 million from $529 million in the third quarter of 2013. The company has a healthy current ratio of 1.70.
Kate Spade ended the quarter with $123 million in cash, compared to just $7 million at the end of the third quarter of 2013.
But perhaps the most exciting part of KATE’s quarterly release was the company’s guidance for the rest of 2014 through 2016.
You see, the company increased its full-year 2014 Adjusted EBITDA guidance from $130 million to $140 million, while announcing a 2016 Adjusted EBITDA margin target of 18% to 20% (including corporate costs).
The company has also increased its direct to consumer comparable sales growth forecast for next year in the range of 19% to 21% because of its strong growth plans. This has provided the company with better-than-expected topline growth in the United States and Asia.
The luxury accessory business can be fickle, but Kate Spade has plenty of room to increase its retail presence despite the pressures on the luxury segment.
Tack on its aggressive men’s merchandise offering via the company’s Jack Spade division, and this luxury accessory maker may just provide investors a, well… luxurious ride higher.