KATE SPADE & CO NEW YORK, Nov. 5, 2015 /PRNewswire/ -- Kate Spade & Company (NYSE: KATE) today announced results for the third quarter ended October 3, 2015.
Net sales for the third quarter of 2015, excluding sales for wind-down operations, were $275 million, an increase of $57 million, or 26.1% compared to the third quarter of 2014, adjusting 2014 net sales for wind-down operations and excluding the impacts of changes in foreign currency exchange rates and 2015 strategic initiatives. Refer to the table entitled "Reconciliation of Non-GAAP Net Sales Information" for a reconciliation from GAAP results.
Reported net sales for the third quarter of 2015 were $277 million, an increase of $27 million, or 10.7%, from the comparable 2014 period.
Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company, said: "Our third quarter results, including industry-leading comparable sales increases, underscore that the diversified foundation we have created is driving sustainable growth in sales and profitability, even with our deliberate pullback in a number of key sales and promotional events. We continue to introduce new product categories and enter new markets in a thoughtful way to attract and retain customers."
Mr. Leavitt concluded: "Moving forward, we will continue to focus on the factors that differentiate our business as a growing global lifestyle brand, including our partnered approach to expansion, controlled points of distribution and relentless quality of sale efforts."
George Carrara, President and Chief Operating Officer of Kate Spade & Company, added: "We are pleased with our strong performance this quarter, which was driven by a strategic omnichannel approach. In addition, the meaningful Adjusted EBITDA expansion we have generated for the first nine months of 2015 positions us well to achieve our guidance for at least 200 basis points of Adjusted EBITDA margin improvement for the full year."
For the third quarter of 2015 on a GAAP basis, income from continuing operations was $5 million, or $0.04 per diluted share, compared to $3 million, or $0.02 per diluted share, for the third quarter of 2014. Adjusted diluted earnings per share from continuing operations in the third quarter of 2015 were $0.06, compared to flat in the third quarter of 2014.
For the first nine months of 2015, the Company recorded a loss from continuing operations of ($40) million, or ($0.31) per share, compared to a loss from continuing operations for the first nine months of 2014 of ($50) million, or ($0.40) per share. Reported net sales for the first nine months of 2015 were $814 million, an increase of $74 million, or 10.0%, from the comparable 2014 period. Adjusted diluted earnings per share from continuing operations in the first nine months of 2015 were $0.15 compared to flat in the first nine months of 2014. Net sales for the first nine months of 2015, excluding sales for wind-down operations, were $788 million, an increase of $156 million, or 24.6% compared to the first nine months of 2014, adjusting 2014 net sales for wind-down operations and excluding the impacts of the 53rd week, changes in foreign currency exchange rates and 2015 strategic initiatives. Adjusted EBITDA, excluding the previously announced wind-down operations in 2015 was $105 million for the first nine months of 2015.
The Company will host a conference call at 8:30 a.m. Eastern time today to discuss its results for the third quarter 2015. The dial-in number is 1-888-694-4676 with pass code 51310214. The webcast and slides accompanying the prepared remarks can be accessed via the Investor Relations section of the Kate Spade & Company website at www.katespadeandcompany.com. An archive of the webcast will be available on the website. Additional information on the results of the Company's operations is available in the Company's Form 10-Q for the third quarter 2015, to be filed with the Securities and Exchange Commission.
The Company determined each of the Kate Spade Saturday, Jack Spade, Kate Spade Brazil and Adelington Design Group initiatives do not represent a strategic shift in the Company's operations and therefore does not present their activities as discontinued operations.
Adjustments to net sales for wind-down operations include net sales for Kate Spade Saturday, Jack Spade brick and mortar locations, Kate Spade Brazil and brand exits in the Adelington Design Group segment in both periods. In addition to those items, the impacts of the 53(rd) week, changes in foreign currency exchange rates and strategic initiatives, including quality of sale and the conversion of the Hong Kong, Macau and Taiwan territories to a joint venture are adjusted in 2014. Refer to the table entitled "Reconciliation of Non-GAAP Net Sales Information" for a reconciliation from GAAP results.
The adjusted results for the third quarter 2015 and 2014, as well as 2015 guidance, exclude the impact of expenses incurred in connection with the Company's streamlining initiatives (such as severance costs, contract termination costs, asset write-downs and other costs) and brand-exiting activities, acquisition related costs, loss on settlement of note receivable and loss on extinguishment of debt. The adjusted results for the first nine months of 2015 also exclude a $26 million charge related to the termination of certain contracts with the Company's former joint venture partner in Kate Spade China Co., Ltd. The Company believes that the adjusted results for such periods represent a more meaningful presentation of its historical operations and financial performance since these results provide period to period comparisons that are consistent and more easily understood. In addition to those items, the Company presents its 2015 adjusted results further adjusted to exclude the adjusted results of wind-down operations (Kate Spade Saturday, Jack Spade brick and mortar, Kate Spade Brazil and brand exits in the Adelington Design Group segment). The Company believes that the adjusted results excluding wind-down operations provide a meaningful presentation of its 2015 results on a go-forward basis and on a consistent basis with the Company's 2015 guidance. The attached tables, captioned "Reconciliation of Non-GAAP Financial Information," provide a full reconciliation of actual results to the adjusted results. The Company presents Adjusted EBITDA, which it defines as income (loss) from continuing operations, adjusted to exclude income tax provision (benefit), interest expense, net, depreciation and amortization, net, expenses incurred in connection with the Company's streamlining initiatives, brand-exiting activities, acquisition related costs, non-cash impairment charges, losses on asset disposals, loss on settlement of note receivable, loss on extinguishment of debt, non-cash share-based compensation expense and unrealized and certain realized foreign currency transaction adjustments, net. The Company presents the above-described Adjusted EBITDA measures because it considers them important supplemental measures of its performance and believes they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry. The Company also presents Adjusted EBITDA Excluding Wind-Down Operations, which the Company defines as Adjusted EBITDA further adjusted to remove the Adjusted EBITDA of Kate Spade Saturday, Jack Spade brick and mortar, Kate Spade Brazil and the brand exits in the Adelington Design Group segment. The Company believes this Adjusted EBITDA measure provides a meaningful presentation of its 2015 results on a go-forward basis that is consistent with its 2015 guidance.
THIRD QUARTER RESULTS
Overall Results
Net sales for the third quarter of 2015, excluding sales for wind-down operations, were $275 million, an increase of $57 million, or 26.1% compared to the third quarter of 2014, adjusting 2014 net sales for wind-down operations and excluding the impacts of changes in foreign currency exchange rates and the 2015 strategic initiatives. Reported net sales for the third quarter of 2015 were $277 million, an increase of $27 million, or 10.7%, from the comparable 2014 period. Third quarter 2015 direct-to-consumer comparable sales growth was 16%, or 11% excluding eCommerce. Comparable sales per square foot for kate spade new york stores were $1,504 for the latest twelve months, compared to $1,495 for the twelve month period ended July 4, 2015.
Gross profit as a percentage of net sales was 61.2%, both excluding the impact of wind-down operations and on a reported basis, for the third quarter of 2015. Gross profit as a percentage of net sales was 62.8% for the third quarter 2014.
Selling, general & administrative expenses were $150 million, or 54.3% of net sales, excluding the results of wind-down operations and expenses associated with streamlining activities. On a reported basis, selling, general and administrative expenses increased to $157 million, or 56.8% of net sales in the third quarter of 2015, compared to $154 million, or 61.4% of net sales in the third quarter of 2014.
Interest expense, net increased to $5 million in the third quarter of 2015, compared to $2 million in the third quarter of 2014, primarily reflecting the absence of interest income related to the Lucky Brand Note.
Net Debt decreased to $182 million at the end of the third quarter of 2015 from $285 million at the end of the third quarter of 2014.
Segment Highlights
Net sales and Segment Adjusted EBITDA for our reportable segments are provided below.
Segment Adjusted EBITDA excludes: (i) depreciation and amortization; (ii) charges due to streamlining initiatives, brand-exiting activities and acquisition related costs; and (iii) losses on asset disposals and impairments. The costs of all corporate departments that serve the respective segment are fully allocated. The Company does not allocate amounts reported below Operating income (loss) to its reportable segments, other than adjusted equity income (loss) in its equity method investees. The Company's definition of Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
Kate Spade North America
Kate Spade North America net sales for the third quarter of 2015, excluding sales for wind-down operations, were $228 million, an increase of $46 million, or 25.5% compared to the third quarter of 2014, adjusting for wind-down operations and excluding the impacts of changes in foreign currency exchange rates and quality of sale initiatives in 2014. Reported net sales for the third quarter of 2015 were $228 million, an increase of $36 million, or 18.5%, from the comparable 2014 period.
Store counts and key operating metrics for kate spade new york stores are as follows:
-- We ended the quarter with 101 specialty retail stores and 63 outlet
stores, reflecting the net addition over the last 12 months of 17
specialty retail stores and 7 outlet stores; and
-- Average retail square footage in the third quarter of 2015 was
approximately 367 thousand square feet, a 17.1% increase compared to
2014.
Kate Spade North America Segment Adjusted EBITDA Excluding Wind-Down Operations was $31 million (13.5% of net sales) for the third quarter of 2015. Kate Spade North America Segment Adjusted EBITDA, including results of wind-down operations was $31 million (13.4% of net sales) for the third quarter of 2015 compared to $21 million (11.0% of net sales) for the third quarter of 2014.
Kate Spade International
Kate Spade International net sales for the third quarter of 2015, excluding sales for wind-down operations, were $41 million, an increase of $9 million, or 27.5% compared to the third quarter of 2014, adjusting for wind-down operations and excluding the impact of the conversion of the Hong Kong, Macau and Taiwan territories to a joint venture and changes in foreign currency exchange rates in 2014. Reported net sales for the third quarter of 2015 were $43 million, a decrease of $8 million, or 15.8%, from the comparable 2014 period.
Store counts and key operating metrics are as follows:
-- We ended the quarter with 20 kate spade new york specialty retail
stores, 52 concessions and 13 outlet stores, reflecting the net addition
over the last 12 months of 3 concessions and 3 outlet stores and a net
reduction of 13 specialty retail stores, including the conversion of 6
specialty retail stores, 3 concessions and 1 outlet store totaling 11
thousand square feet in Hong Kong, Macau and Taiwan to a joint venture;
and
-- Average retail square footage for Japan and Europe in the third quarter
of 2015 was approximately 75 thousand square feet, an 18.4% increase
compared to 2014.
Kate Spade International Segment Adjusted EBITDA Excluding Wind-Down Operations was $5 million (12.0% of net sales) for the third quarter of 2015. Kate Spade International Segment Adjusted EBITDA, including results of wind-down operations, was $5 million (11.2% of net sales) for the third quarter of 2015 compared to ($1) million ((2.6)% of net sales) for the third quarter of 2014.
Adelington Design Group
Adelington Design Group net sales for the third quarter of 2015 were $6 million, an increase of $2 million or 40.0% adjusting for wind-down operations in 2014. Reported net sales were $6 million, a 10.0% decrease compared to 2014.
Adelington Design Group Segment Adjusted EBITDA Excluding Wind-Down Operations was $1 million in the third quarter of 2015 and Segment Adjusted EBITDA was $1 million in the third quarter of 2015 and 2014.
About Kate Spade & Company
Kate Spade & Company (NYSE: KATE) designs and markets accessories and apparel principally under two global, multichannel lifestyle brands: kate spade new york and Jack Spade. With collections spanning demographics, genders and geographies, the brands are intended to accent customers' interesting lives and inspire adventure at each turn. The Company also owns the Adelington Design Group, a private brand jewelry design and development group that markets brands through department stores and serves jcpenney via exclusive supplier agreements for the Liz Claiborne and Monet jewelry lines. The Company also has a license for the Liz Claiborne New York brand, available at QVC, and Lizwear, which is distributed through the club store channel. Visit www.katespadeandcompany.com for more information.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in, or incorporated by reference into, this press release, future filings by us with the Securities and Exchange Commission ("SEC"), and oral statements made by, or with the approval of, our authorized personnel, that relate to our future performance or future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such statements are indicated by words or phrases such as "intend," "anticipate," "plan," "estimate," "target," "aim," "forecast," "project," "expect," "believe," "we are optimistic that we can," "current visibility indicates that we forecast," "contemplation" or "currently envisions" and similar phrases.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control, that could cause actual results to differ materially from those suggested by the forward-looking statements, including, without limitation: our ability to successfully implement our long-term strategic plans; general economic conditions in the United States, Canada, Asia, Europe and other parts of the world; our exposure to currency fluctuations; levels of consumer confidence, consumer spending and purchases of discretionary items, including fashion apparel and related products, such as ours; changes in the cost of raw materials, occupancy, labor, advertising and transportation which could impact prices of our products; our ability to expand into markets outside of the US, including our ability to promote brand awareness in our international markets, find suitable partners in certain of those markets and hire and retain key employees for those markets; our ability to maintain targeted profit margins and levels of promotional activity; our ability to optimize our product offerings, in order to anticipate and respond timely to constantly changing consumer demands and tastes and fashion trends, across multiple brands, product lines, shopping channels and geographies; the impact of the highly competitive nature of the markets within which we operate, both within the US and abroad; issues related to our current level of debt, including an inability to pursue certain business strategies because of the restrictive covenants in the agreements governing our debt and our potential inability to obtain the capital resources needed to operate and grow our business; restrictions in the credit and capital markets, which would impair our ability to access additional sources of liquidity, if needed; our ability to expand our retail footprint with profitable store locations; our ability to implement operational improvements and realize economies of scale in finished product and raw material costs in connection with growth in our business; our ability to expand into new product categories; our ability to successfully implement our marketing initiatives; our ability to complete the wind-down of our owned business in Brazil in a satisfactory manner and to manage the associated costs, including the impact on our relationships with our employees, vendors, distributors and landlords and unanticipated expenses and charges that may occur, such as litigation risk, including litigation regarding employment and workers' compensation; risks associated with the various businesses we have disposed, including compliance with our transition service requirements; our dependence on a limited number of large US department store customers, and the risk of consolidations, restructurings, bankruptcies and other ownership changes in the retail industry and financial difficulties at our larger department store customers; risks associated with decreased diversification of our business as a result of the reduction of our brand portfolio to the Kate Spade and Adelington Design Group businesses; risks associated with material disruptions in our information technology systems, both owned and licensed, and with our third party eCommerce platforms and operations; risks associated with data security, including privacy breaches; risks associated with credit card fraud and identity theft; our ability to attract and retain talented, highly qualified executives, and maintain satisfactory relationships with our employees; our ability to adequately establish, defend and protect our trademarks and other proprietary rights; our reliance on independent foreign manufacturers, including the risk of their failure to comply with safety standards or our policies regarding labor practices; risks associated with having a buying/sourcing agreement which results in a single third party foreign buying/sourcing agent for a significant portion of our apparel products and transitioning buying/sourcing activities for our non-apparel products to an in-house model; risks associated with our arrangement to operate our leased Ohio distribution facility with a third party operations and labor management company that provides distribution operations services, including risks related to increased operating expenses, systems capabilities and operating under a third party arrangement; risks associated with severe weather, natural disasters, public health crises, war, terrorism or other catastrophic events; a variety of legal, regulatory, political, labor and economic risks, including risks related to the importation and exportation of product, tariffs and other trade barriers; our ability to adapt to and compete effectively in the current quota environment in which general quota has expired on apparel products, but political activity seeking to re-impose quota has been initiated or threatened; risks associated with third party service providers, both domestic and overseas, including service providers in the area of e-commerce; limitations on our ability to utilize all or a portion of our US deferred tax assets if we experience an "ownership change"; and the outcome of current and future litigation and other proceedings in which we are involved.
The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All subsequent written and oral forward-looking statements concerning the matters addressed in this press release and attributable to us or any person acting on our behalf are qualified by these cautionary statements. Forward-looking statements are based on current expectations only and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions, including those described in this press release, and in the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 2015, to be filed with the SEC, including in the sections entitled "Item 1A-Risk Factors" and "Statement Regarding Forward Looking Statements." We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. In addition, some factors are beyond our control. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per common share data)
Three Months Ended Three Months Ended
October 3, 2015 % of October 4, 2014 % of
(13 Weeks) Sales (13 Weeks) Sales
--------- ----- --------- -----
Net Sales $277,328 100.0 % $250,417 100.0 %
Cost of goods sold 107,514 38.8 % 93,103 37.2 %
------- ------
Gross Profit 169,814 61.2 % 157,314 62.8 %
Selling, general & administrative
expenses 157,497 56.8 % 153,767 61.4 %
------- -------
Operating Income 12,317 4.4 % 3,547 1.4 %
Other expense, net (1,560) (0.6) % (1,805) (0.7) %
Interest expense, net (5,274) (1.9) % (2,189) (0.9) %
------ ------
Income (Loss) Before Provision
(Benefit) for Income Taxes 5,483 2.0 % (447) (0.2) %
Provision (benefit) for income
taxes 973 0.4 % (3,070) (1.2) %
--- ------
Income from Continuing Operations 4,510 1.6 % 2,623 1.0 %
Discontinued operations, net of
income taxes (2,207) (11,753)
------ -------
Net Income (Loss) $2,303 $(9,130)
====== =======
Earnings per Share:
Basic
Income from Continuing
Operations $0.04 $0.02
Net Income (Loss) $0.02 $(0.07)
Diluted
Income from Continuing
Operations $0.04 $0.02
Net Income (Loss) $0.02 $(0.07)
Weighted Average Shares, Basic 127,682 126,971
Weighted Average Shares, Diluted 128,118 127,610
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per common share data)
Nine Months Ended Nine Months Ended
October 3, 2015 % of October 4, 2014 % of
(39 Weeks) Sales (40 Weeks) Sales
--------- ----- --------- -----
Net Sales $813,762 100.0 % $740,029 100.0 %
Cost of goods sold 317,743 39.0 % 289,982 39.2 %
------- -------
Gross Profit 496,019 61.0 % 450,047 60.8 %
Selling, general & administrative
expenses 503,282 61.8 % 463,499 62.6 %
------- -------
Operating Loss (7,263) (0.9) % (13,452) (1.8) %
Other expense, net (4,778) (0.6) % (1,717) (0.2) %
Loss on settlement of note
receivable (9,873) (1.2) % - -
Loss on extinguishment of debt - - (16,914) (2.3) %
Interest expense, net (13,982) (1.7) % (18,185) (2.5) %
------- -------
Loss Before Provision (Benefit) for
Income Taxes (35,896) (4.4) % (50,268) (6.8) %
Provision (benefit) for income
taxes 3,904 0.5 % (500) (0.1) %
----- ----
Loss from Continuing Operations (39,800) (4.9) % (49,768) (6.7) %
Discontinued operations, net of
income taxes (4,577) 82,404
Net (Loss) Income $(44,377) $32,636
======== =======
Earnings per Share:
Basic & Diluted
Loss from Continuing
Operations $(0.31) $(0.40)
Net (Loss) Income $(0.35) $0.26
Weighted Average Shares, Basic and
Diluted (a) 127,611 125,972
_______________
(a) Because the Company incurred a
loss from continuing operations
for the nine months ended
October 3, 2015 and October 4,
2014, all potentially dilutive
shares are antidilutive.
Accordingly, basic and diluted
weighted average shares
outstanding are equal for such
periods.
KATE SPADE & COMPANY
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
October 3, 2015 October 4, 2014
--------------- ---------------
Assets
Current
Assets:
Cash and
cash
equivalents $219,659 $123,334
Accounts
receivable
-trade,
net 58,893 62,275
Inventories,
net 248,407 220,725
Other
current
assets 36,414 40,446
------ ------
Total
current
assets 563,373 446,780
------- -------
Property and
Equipment, Net 177,333 176,359
Goodwill 48,790 68,871
Intangibles,
Net 87,204 92,689
Note Receivable - 87,853
Other Assets 45,588 33,094
Total Assets $922,288 $905,646
======== --------
Liabilities and Stockholders' Equity
Current
Liabilities:
Short-term
borrowings $4,499 $7,446
Other
current
liabilities 279,159 263,712
Total
current
liabilities 283,658 271,158
------- -------
Long-Term Debt 397,114 401,351
Other Non-
Current
Liabilities 68,100 162,971
Stockholders'
Equity 173,416 70,166
Total Liabilities and Stockholders'
Equity $922,288 $905,646
======== ========
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Nine Months Ended
-----------------
October 3, October 4,
2015 2014
(39 Weeks) (40 Weeks)
--------- ---------
Cash Flows from Operating Activities:
Net (loss) income $(44,377) $32,636
Adjustments to
arrive at loss
from continuing
operations 4,577 (82,404)
Loss from
continuing
operations (39,800) (49,768)
Adjustments to
reconcile loss
from continuing
operations to net
cash provided by
(used in)
operating
activities:
Depreciation
and
amortization 36,837 39,240
Loss on asset
disposals and
impairments,
including
streamlining
initiatives,
net 8,631 2,653
Share-based
compensation 19,440 31,772
Loss on
settlement of
note
receivable 9,873 -
Loss on
extinguishment
of debt - 16,914
Foreign
currency
losses, net 609 2,287
Other, net 3,863 1,358
Changes in assets
and liabilities:
Decrease in
accounts
receivable -
trade, net 30,588 2,324
Increase in
inventories,
net (98,924) (82,144)
Decrease
(increase) in
other current
and non-
current assets 7,740 (8,759)
Increase in
accounts
payable 46,642 9,071
Decrease in
accrued
expenses and
other non-
current
liabilities (7,512) (22,522)
Net change in
income tax
assets and
liabilities 1,331 (174)
Net cash used
in operating
activities of
discontinued
operations (10,845) (17,823)
------- -------
Net cash
provided
by (used
in)
operating
activities 8,473 (75,571)
----- -------
Cash Flows from Investing Activities:
Proceeds from
sales of property
and equipment 816 -
Purchases of
property and
equipment (40,775) (67,534)
Payments for
purchases of
businesses - (32,268)
Proceeds from
sales of joint
venture
interests, net 19,874 -
Payment for joint
venture interest (10,000) -
Payments for in-
store merchandise
shops (4,858) (4,318)
Net proceeds from
settlement of
note receivable 75,128 -
Investments in and
advances to
equity investees (5,000) -
Other,
net 347 (30)
Net cash provided
by investing
activities of
discontinued
operations 668 137,922
Net cash
provided
by
investing
activities 36,200 33,772
------ ------
Cash Flows from Financing Activities:
Proceeds from
borrowings under
revolving credit
agreement 2,000 5,063
Repayment of
borrowings under
revolving credit
agreement (8,000) (4,960)
Principal payments
under capital
lease obligations (339) (303)
Proceeds from
issuance of Term
Loan - 398,000
Repayment of
Senior Notes - (390,693)
Repayment of Term
Loan (3,000) (1,000)
Proceeds from
exercise of stock
options 2,428 41,410
Payment of
deferred
financing fees (1,159) (9,282)
Net cash
(used in)
provided
by
financing
activities (8,070) 38,235
------ ------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents (988) (3,324)
Net Change in Cash and Cash Equivalents 35,615 (6,888)
Cash and Cash Equivalents at Beginning of Period 184,044 130,222
------- -------
Cash and Cash Equivalents at End of
Period $219,659 $123,334
======== ========
KATE SPADE & COMPANY
SEGMENT REPORTING
(Dollars in thousands)
Segment % of
Net Sales Adjusted EBITDA (a) Sales
--------- ------------------ -----
Three Months Ended October 3, 2015
(13 Weeks)
KATE SPADE
North
America $228,493 $30,713 13.4 %
KATE SPADE
International
(b) 42,870 4,793 11.2 %
Adelington
Design
Group 5,965 1,127 18.9 %
Total $277,328
========
Segment % of
Net Sales Adjusted EBITDA (a) Sales
--------- ------------------ -----
Three Months Ended October 4, 2014
(13 Weeks)
KATE SPADE
North
America $192,886 $21,130 11.0 %
KATE SPADE
International
(b) 50,906 (1,346) (2.6) %
Adelington
Design
Group 6,625 1,030 15.5 %
Other (c) - (90) -
Total $250,417
========
Segment % of
Net Sales Adjusted EBITDA (a) Sales
--------- ------------------ -----
Nine Months Ended October 3, 2015
(39 Weeks)
KATE SPADE
North
America $659,809 $86,566 13.1 %
KATE SPADE
International
(b) 136,056 13,215 9.7 %
Adelington
Design
Group 17,897 2,728 15.2 %
Total $813,762
========
Segment % of
Net Sales Adjusted EBITDA (a) Sales
--------- ------------------ -----
Nine Months Ended October 4, 2014
(40 Weeks)
KATE SPADE
North
America $565,021 $69,614 12.3 %
KATE SPADE
International
(b) 153,512 81 0.1 %
Adelington
Design
Group 21,496 1,020 4.7 %
Other (c) - (685) -
Total $740,029
========
_______________
(a) Segment
Adjusted
EBITDA
excludes: (i)
depreciation
and
amortization;
(ii) charges
due to
streamlining
initiatives,
brand-
exiting
activities
and
acquisition
related
costs; (iii)
losses on
asset
disposals and
impairments;
and (iv) a
$26,000
charge in the
nine months
ended October
3, 2015 to
terminate
contracts
with the
Company's
former joint
venture
partner in
China. The
costs of all
corporate
departments
that serve
the
respective
segment are
fully
allocated.
The Company
does not
allocate
amounts
reported
below
Operating
income (loss)
to its
reportable
segments,
other than
adjusted
equity loss
in its equity
method
investees.
Refer to the
tables
entitled
"Reconciliation
of Non-GAAP
Financial
Information"
for further
information.
(b) Amounts
include
equity in the
adjusted
losses of
equity method
investees of
$915 and
$1,185 for
the three
months ended
October 3,
2015 and
October 4,
2014,
respectively,
and $3,586
and $1,358
for the nine
months ended
October 3,
2015 and
October 4,
2014,
respectively.
(c) Other consists
of expenses
principally
related to
distribution
functions
that were
included in
Juicy Couture
and Lucky
Brand
historical
results, but
are not
directly
attributable
to those
businesses
and therefore
have not been
included in
discontinued
operations.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per share data)
Reported (a) Streamlining Adjusted Results Results of Wind-Down Adjusted Results
Initiatives (b) Operations (c) (Excluding Wind-
Down Operations) (d)
-------------------
Three Months Ended
October 3, 2015 (13
Weeks)
Total Net Sales $277,328 $277,328 $(2,058) $275,270
KATE SPADE North America 228,493 228,493 (187) 228,306
KATE SPADE International 42,870 42,870 (1,871) 40,999
Adelington Design Group 5,965 5,965 - 5,965
Gross Profit 169,814 169,814 (1,259) 168,555
SG&A 157,497 $(6,684) 150,813 (1,230) 149,583
Operating Income $12,317 $6,684 $19,001 $(29) $18,972
------- ------ ------- ---- -------
Other expense, net (1,560) 443 (1,117) (1,117)
Interest expense, net (5,274) (5,274) (5,274)
Provision for income taxes (e) 973 4,137 5,110 (12) 5,098
--- ----- --- -----
Income from
Continuing
Operations $4,510 $2,990 $7,500 $(17) $7,483
====== ====== ====== ==== ======
Basic Earnings per Common Share
from $0.04 $0.06 $0.06
Continuing Operations
Diluted Earnings per Common Share
from $0.04 $0.06 $0.06
Continuing Operations (f)
Reconciliation of
Adjusted EBITDA:
Adjusted operating
income, per above $19,001 $(29) $18,972
Depreciation and amortization, asset
impairments and losses on asset disposals,
net (g) 11,974 (2) 11,972
Share-based compensation, net (h) 6,573 6,573
Other expense, net (i) (1,087) (1,087)
Adjusted EBITDA $36,461 $(31) $36,430
======= ==== =======
KATE SPADE North
America $30,713 $52 $30,765
KATE SPADE
International (j) 4,793 116 4,909
Adelington Design
Group 1,127 (199) 928
Other (k) (172) (172)
Adjusted EBITDA $36,461 $(31) $36,430
======= ==== =======
_______________
(a) Represents the
results of
Kate Spade &
Company in
accordance
with
accounting
principles
generally
accepted in
the US.
(b) Represents
charges due to
streamlining
initiatives
comprised of:
(i) payroll,
contract
termination
costs, asset
write-downs
and other
costs of
$7,030; and
(ii) store
closure, other
brand-exiting
and
acquisition
related
credits of
$(346).
(c) Represents
adjustments to
remove the
adjusted
results of
KATE SPADE
SATURDAY, JACK
SPADE brick
and mortar,
Kate Spade
Brazil and
Adelington
Design Group
exiting brands
(Trifari,
Trina Turk and
Kensie).
(d) Represents the
adjusted
results of the
Company
excluding the
results of
KATE SPADE
SATURDAY, JACK
SPADE brick
and mortar,
Kate Spade
Brazil and
Adelington
Design Group
exiting
brands. This
is presented
in order to
provide
adjusted
results on the
same basis as
the Company's
2015 guidance.
(e) Adjusted
amounts
represent
adjusted
pretax income
multiplied by
a normalized
tax rate of
40.0%, plus
$0.1 million
for interest
and penalties
on uncertain
tax positions.
The normalized
tax rate was
derived by
reference to
statutory tax
rates in the
regions in
which the
Company
operates,
without giving
effect to the
Company's
valuation
allowance or
potential use
of its net
operating loss
carryforwards.
(f) Adjusted
diluted
earnings per
share for the
three months
ended October
3, 2015 are
based on
128,118 shares
outstanding.
(g) Excludes
amortization
included in
Interest
expense, net.
(h) Excludes $0.1
million of
share-based
compensation
expense that
was classified
as
restructuring.
(i) Amount is
reported Other
expense, net
as shown
above, net of
foreign
currency
transaction
adjustment of
$30 and
restructuring
charges of
$443 included
in equity in
the losses of
equity method
investees.
(j) Amounts include
equity in the
adjusted
losses of
equity method
investees of
$915.
(k) Amount is
reported Other
expense, net
as shown
above, net of
foreign
currency
transaction
adjustment of
$30 and equity
in the losses
of equity
method
investees of
$1,358.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per share data)
Reported (a) Streamlining Initiatives (b) Adjusted Results
----------- --------------------------- ----------------
Three Months Ended
October 4, 2014 (13
Weeks)
Total Net Sales $250,417 $250,417
KATE SPADE North America 192,886 192,886
KATE SPADE International 50,906 50,906
Adelington Design Group 6,625 6,625
Gross Profit 157,314 157,314
SG&A 153,767 $(824) 152,943
Operating Income $3,547 $824 $4,371
------ ---- ------
Other expense, net (1,805) (1,805)
Interest expense, net (2,189) (2,189)
(Benefit) provision for income
taxes (c) (3,070) 4,021 951
------ ----- ---
Income (Loss) from
Continuing
Operations $2,623 $(3,197) $(574)
====== ======= =====
Basic Earnings per Common Share
from $0.02 $ -
Continuing Operations
Diluted Earnings per Common Share
from $0.02 $ -
Continuing Operations (d)
Reconciliation of
Adjusted EBITDA:
Adjusted operating
income, per above $4,371
Depreciation and amortization, asset impairments and
losses on asset disposals, net (e) 12,080
Share-based compensation, net (f) 5,458
Other expense, net (g) (826)
Adjusted EBITDA $21,083
=======
KATE SPADE North
America $21,130
KATE SPADE
International (h) (1,346)
Adelington Design
Group 1,030
Other (i) 269
Adjusted EBITDA $21,083
=======
_______________
(a) Represents the
results of
Kate Spade &
Company in
accordance
with
accounting
principles
generally
accepted in
the US.
(b) Represents
charges due to
streamlining
initiatives
comprised of:
(i) payroll,
contract
termination
costs, asset
write-downs
and other
costs of
$1,134 and
(ii) store
closure, other
brand-exiting
and
acquisition
related
credits of
($310).
(c) Adjusted amount
represents
adjusted
pretax income
multiplied by
a normalized
tax rate of
40.0%, plus
$0.8 million
for interest
and penalties
on uncertain
tax positions.
The normalized
tax rate was
derived by
reference to
statutory tax
rates in the
regions in
which the
Company
operates,
without giving
effect to the
Company's
valuation
allowance or
potential use
of its net
operating loss
carryforwards.
(d) Because the
Company
incurred an
adjusted loss
from
continuing
operations for
the three
months ended
October 4,
2014, all
potentially
dilutive
shares are
antidilutive.
Accordingly,
basic and
diluted
weighted
average shares
outstanding
are equal for
such period.
(e) Excludes
amortization
included in
Interest
expense, net.
(f) Excludes $0.3
million of
share-based
compensation
expense that
was classified
as
restructuring.
(g) Amount is Other
expense, net
as shown
above, net of
foreign
currency
transaction
adjustment of
$979.
(h) Includes equity
in the losses
of equity
method
investee of
$1,185.
(i) Amount includes
($90)
principally
related to
distribution
functions that
were included
in Juicy
Couture and
Lucky Brand
historical
results, but
are not
directly
attributable
to those
businesses and
therefore have
not been
included in
discontinued
operations and
Other expense,
net, above,
net of foreign
currency
transaction
adjustment of
$979 and
equity in the
losses of
equity method
investee of
$1,185.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per share data)
Reported (a) Streamlining Adjusted Results Results of Wind-Down Adjusted Results
Initiatives and JV Operations (c) (Excluding Wind-
Termination Fee (b) Down Operations) (d)
------------------ -------------------
Nine Months Ended
October 3, 2015 (39
Weeks)
Total Net Sales $813,762 $813,762 $(26,156) $787,606
KATE SPADE North America 659,809 659,809 (12,980) 646,829
KATE SPADE International 136,056 136,056 (11,459) 124,597
Adelington Design Group 17,897 17,897 (1,717) 16,180
Gross Profit 496,019 496,019 (11,127) 484,892
SG&A 503,282 $(58,744) 444,538 (14,807) 429,731
Operating (Loss)
Income $(7,263) $58,744 $51,481 $3,680 $55,161
------- ------- ------- ------ -------
Other expense, net (4,778) 526 (4,252) (4,252)
Loss on settlement of note
receivable (9,873) 9,873 - -
Interest expense, net (13,982) (13,982) (13,982)
Provision for income taxes (e) 3,904 9,603 13,507 1,472 14,979
----- ----- ----- ------
(Loss) Income from
Continuing
Operations $(39,800) $59,540 $19,740 $2,208 $21,948
======== ======= ======= ====== =======
Basic Earnings per Common Share
from $(0.31) $0.15 $0.17
Continuing Operations
Diluted Earnings per Common Share
from $(0.31) $0.15 $0.17
Continuing Operations (f)
Reconciliation of
Adjusted EBITDA:
Adjusted operating
income, per above $51,481 $3,680 $55,161
Depreciation and amortization, asset impairments
and losses on asset disposals, net (g) 35,480 (550) 34,930
Share-based compensation, net (h) 19,134 19,134
Other expense, net (i) (3,755) (3,755)
Adjusted EBITDA $102,340 $3,130 $105,470
======== ====== ========
KATE SPADE North
America $86,566 $2,931 $89,497
KATE SPADE
International (j) 13,215 475 13,690
Adelington Design
Group 2,728 (276) 2,452
Other (k) (169) (169)
Adjusted EBITDA $102,340 $3,130 $105,470
======== ====== ========
_______________
(a) Represents the
results of
Kate Spade &
Company in
accordance
with
accounting
principles
generally
accepted in
the US.
(b) Represents
charges due to
streamlining
initiatives
comprised of:
(i) payroll,
contract
termination
costs, asset
write-downs
and other
costs of
$33,025; (ii)
store closure,
other brand-
exiting and
acquisition
related
credits of
$(281); and
(iii) a
$26,000 charge
related to the
termination of
certain
contracts with
the Company's
former joint
venture
partner in
China.
(c) Represents
adjustments to
remove the
adjusted
results of
KATE SPADE
SATURDAY, JACK
SPADE brick
and mortar,
Kate Spade
Brazil and
Adelington
Design Group
exiting brands
(Trifari,
Trina Turk and
Kensie).
(d) Represents the
adjusted
results of the
Company
excluding the
results of
KATE SPADE
SATURDAY, JACK
SPADE brick
and mortar,
Kate Spade
Brazil and
Adelington
Design Group
exiting
brands. This
is presented
in order to
provide
adjusted
results on the
same basis as
the Company's
2015 guidance.
(e) Adjusted
amounts
represent
adjusted
pretax income
multiplied by
a normalized
tax rate of
40.0%, plus
$0.2 million
for interest
and penalties
on uncertain
tax positions.
The normalized
tax rate was
derived by
reference to
statutory tax
rates in the
regions in
which the
Company
operates,
without giving
effect to the
Company's
valuation
allowance or
potential use
of its net
operating loss
carryforwards.
(f) Adjusted
diluted
earnings per
share for the
nine months
ended October
3, 2015 are
based on
128,208 shares
outstanding.
(g) Excludes
amortization
included in
Interest
expense, net.
(h) Excludes $0.3
million of
share-based
compensation
expense that
was classified
as
restructuring.
(i) Amount is
reported Other
expense, net
as shown
above, net of
foreign
currency
transaction
adjustment of
$497 and
restructuring
charges of
$526 included
in equity in
the losses of
equity method
investees.
(j) Amounts include
equity in the
adjusted
losses of
equity method
investees of
$3,586.
(k) Amount is
reported Other
expense, net
as shown
above, net of
foreign
currency
transaction
adjustment of
$497 and
equity in the
losses of
equity method
investees of
$4,112.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per share data)
Reported (a) Streamlining Initiatives and Adjusted Results
Loss on Extinguishment of
Debt (b)
-------
Nine Months Ended
October 4, 2014 (40
Weeks)
Total Net Sales $740,029 $740,029
KATE SPADE North America 565,021 565,021
KATE SPADE International 153,512 153,512
Adelington Design Group 21,496 21,496
Gross Profit 450,047 450,047
SG&A 463,499 $(35,516) 427,983
Operating (Loss)
Income $(13,452) $35,516 $22,064
-------- ------- -------
Other expense, net (1,717) (1,717)
Loss on extinguishment of debt (16,914) 16,914 -
Interest expense, net (c) (18,185) 2,302 (15,883)
(Benefit) provision for income taxes
(d) (500) 4,425 3,925
---- ----- -----
(Loss) Income from
Continuing
Operations $(49,768) $50,307 $539
======== ======= ====
Basic Earnings per Common Share from $(0.40) $ -
Continuing Operations
Diluted Earnings per Common Share
from $(0.40) $ -
Continuing Operations (e)
Reconciliation of
Adjusted EBITDA:
Adjusted operating
income, per above $22,064
Depreciation and amortization, asset impairments and
losses on asset disposals, net (f) 34,771
Share-based compensation, net (g) 14,553
Other expense, net (h) (1,102)
Adjusted EBITDA $70,286
=======
KATE SPADE North
America $69,614
KATE SPADE
International (i) 81
Adelington Design
Group 1,020
Other (j) (429)
Adjusted EBITDA $70,286
=======
_______________
(a) Represents the
results of
Kate Spade &
Company in
accordance
with
accounting
principles
generally
accepted in
the US.
(b) Represents
charges due to
streamlining
initiatives
comprised of:
(i) payroll,
contract
termination
costs, asset
write-downs
and other
costs of
$34,979; (ii)
store closure,
other brand-
exiting and
acquisition
related
credits of
$(165) and
(iii) a non-
cash write-
off of debt
issuance costs
included in
SG&A of $702.
(c) Adjustment
reflects a
non-cash
write-off of
debt issuance
costs
associated
with the
amended and
restated
revolving
credit
facility for
the nine
months ended
October 4,
2014.
(d) Adjusted amount
represents
adjusted
pretax income
multiplied by
a normalized
tax rate of
40.0%, plus
$2.1 million
for interest
and penalties
on uncertain
tax positions.
The normalized
tax rate was
derived by
reference to
statutory tax
rates in the
regions in
which the
Company
operates,
without giving
effect to the
Company's
valuation
allowance or
potential use
of its net
operating loss
carryforwards.
(e) Adjusted
diluted
earnings per
share are
based on
126,760 shares
outstanding.
(f) Excludes
amortization
included in
Interest
expense, net.
(g) Excludes $17.2
million of
share-based
compensation
expense that
was classified
as
restructuring.
(h) Amount is Other
expense, net
as shown
above, net of
foreign
currency
transaction
adjustment of
$615.
(i) Includes equity
in the losses
of equity
method
investee of
$1,358.
(j) Amount includes
($685)
principally
related to
distribution
functions that
were included
in Juicy
Couture and
Lucky Brand
historical
results, but
are not
directly
attributable
to those
businesses and
therefore have
not been
included in
discontinued
operations and
Other expense,
net, above,
net of foreign
currency
transaction
adjustment of
$615 and
equity in the
losses of
equity method
investee of
$1,358.
KATE SPADE &
COMPANY
RECONCILIATION OF
NON-GAAP NET
SALES
INFORMATION
(Dollars in
thousands)
The following
table provides
reconciliations
of Net Sales as
reported to Net
Sales excluding
wind-down
operations (a)in
2015 and to Net
Sales excluding
wind-down
operations and
adjusting for
the impacts of
changes in
foreign currency
exchange rates
and strategic
initiatives in
2014 (b).
Three Months Ended
------------------
October 3, 2015 October 4, 2014 Variance
(13 Weeks) (13 Weeks) $ %
--------- --------- --- ---
Total Company
Net Sales as
reported $277,328 $250,417 $26,911 10.7%
Less: Net sales
for wind-
down
operations
(a) (2,058) (12,994)
Net sales
impact of
strategic
initiatives
(b) - (10,950)
Foreign
currency
impact - (8,201)
--- ------
Adjusted Net
Sales $275,270 $218,272 $56,998 26.1%
======== ========
KATE SPADE
North America
Net Sales as
reported $228,493 $192,886 $35,607 18.5%
Less: Net sales
for wind-
down
operations
(a) (187) (6,364)
North
America
quality of
sale
initiatives - (2,400)
Foreign
currency
impact - (2,270)
Adjusted Net
Sales $228,306 $181,852 $46,454 25.5%
======== ========
KATE SPADE
International
Net Sales as
reported $42,870 $50,906 $(8,036) -15.8%
Less: Net sales
for wind-
down
operations
(a) (1,871) (4,266)
Net sales
impact of
strategic
initiatives - (8,550)
Foreign
currency
impact - (5,931)
Adjusted Net
Sales $40,999 $32,159 $8,840 27.5%
======= =======
Adelington
Design Group
Net Sales as
reported $5,965 $6,625 $(660) -10.0%
Less: Net sales
for wind-
down
operations
(a) - (2,364)
Adjusted Net
Sales $5,965 $4,261 $1,704 40.0%
====== ======
_______________
(a) Represents net sales for KATE
SPADE SATURDAY, JACK SPADE
brick and mortar, Kate Spade
Brazil and Adelington Design
Group exiting brands (Trifari,
Trina Turk and Kensie).
(b) Represents the estimated impact
on net sales of strategic
initiatives announced in 2015,
including the conversion of
the Hong Kong, Macau and
Taiwan territories to a joint
venture and North America
quality of sale initiatives.
KATE SPADE &
COMPANY
RECONCILIATION OF
NON-GAAP NET
SALES
INFORMATION
(Dollars in
thousands)
The following
table provides
reconciliations
of Net Sales as
reported to Net
Sales excluding
wind-down
operations (a)in
2015 and to Net
Sales excluding
wind-down
operations and
adjusting for
the impacts of
the 53rd week,
changes in
foreign currency
exchange rates
and strategic
initiatives in
2014 (b).
Nine Months Ended
-----------------
October 3, 2015 October 4, 2014 Variance
(39 Weeks) (40 Weeks) $ %
--------- --------- --- ---
Total Company
Net Sales as
reported $813,762 $740,029 $73,733 10.0%
Less: Net sales for
wind-down
operations (a) (26,156) (40,537)
Net sales
impact of
strategic
initiatives
(b) - (27,526)
Additional
week in
2014 - (17,900)
Foreign
currency
impact - (22,092)
Adjusted Net
Sales $787,606 $631,974 $155,632 24.6%
======== ========
KATE SPADE North
America
Net Sales as
reported $659,809 $565,021 $94,788 16.8%
Less: Net sales for
wind-down
operations (a) (12,980) (22,800)
North America
quality of
sale
initiatives - (9,952)
Additional
week in
2014 - (13,973)
Foreign
currency
impact - (4,394)
Adjusted Net
Sales $646,829 $513,902 $132,927 25.9%
======== ========
KATE SPADE
International
Net Sales as
reported $136,056 $153,512 $(17,456) -11.4%
Less: Net sales for
wind-down
operations (a) (11,459) (10,832)
Net sales
impact of
strategic
initiatives - (17,574)
Additional
week in
2014 - (3,927)
Foreign
currency
impact - (17,698)
Adjusted Net
Sales $124,597 $103,481 $21,116 20.4%
======== ========
Adelington Design
Group
Net Sales as
reported $17,897 $21,496 $(3,599) -16.7%
Less: Net sales for
wind-down
operations (a) (1,717) (6,905)
Adjusted Net
Sales $16,180 $14,591 $1,589 10.9%
======= =======
_______________
(a) Represents net sales for KATE SPADE
SATURDAY, JACK SPADE brick and
mortar, Kate Spade Brazil and
Adelington Design Group exiting
brands (Trifari, Trina Turk and
Kensie).
(b) Represents the estimated impact on
net sales of strategic initiatives
announced in 2015, including the
conversion of the Hong Kong, Macau
and Taiwan territories to a joint
venture and North America quality
of sale initiatives.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kate-spade--company-reports-third-quarter-2015-results-300172874.html
SOURCE Kate Spade & Company
