Margins of Kate Spade & Co. (NYSE:KATE) Suffer From the Markdowns

Kate Spade & Co. (NYSE:KATE) announced that it has seen a decrease in its loss during the second quarter of the year 2014. According to the company, the loss narrowed down due to an increase in the demand of company’s products. The company’s shares were down by 20 percent on the last trading day, August 12, 2014.

Kate Spade & Co. (NYSE:KATE), like its competitor Michael Kors Holdings Ltd., said that the margins have shrunken due to an increase in the discounts offered by the company. The company further said that it increased the discounts because the Saturday brand (a lower-priced Kate product) was in excess. Kate Spade & Co.’s (NYSE:KATE) margins shrank from 61.8 percent to 58.6 percent during a period of one year.

The company, on the last trading day, saw an increase of 9 percent during the early morning trading; however, the prices came down when the investors realized the narrower margins.

The company was previously known by the name of Fifth & Pacific Cos., and before that, it was Liz Claiborne Inc.; it adopted the name Kate Spade & Co. (NYSE:KATE) in February 2014. The previous chief executive of the company William McComb, for the last 8 years, focused more on the namesake brands than the growth of the company.

Kate Spade & Co. (NYSE:KATE), together with its competitor Michael Kors, cut down the handbag market share of the rival Coach Inc. Michael Kors recently announced that its sales and profits went up; however, the markdowns had a negative impact on the margins. On the other hand, Coach Inc. announced that its earnings tumbled down due to a decrease in the sales in the North American region. The company also reported increased costs for the year.

Coming to Kate Spade & Co. (NYSE:KATE) loss, the company reported a total loss of $4.4 million for the second quarter of the year 2014, which came to 3 cents per share. It is important to note here that the company suffered a loss of $43.1 million during the last fiscal year; compared to that, this year’s performance is not bad. Adjusted earnings, excluding the costs of acquisitions and adding the benefits from Lucky Brand and Juicy Couture, make up to +$0.05.

Thomson had expected Kate Spade & Co. (NYSE:KATE) to break even.

Net sales of the company increased by 49 percent and reached to $226 million, beating the Wall Street estimate of $238 million.

The company, during its second quarter, split the original company into two segments: Kate Spade International and Kate Spade North America. The posted sales of both these segments were 54 percent and 55 percent respectively. Coming to the general and selling costs of the company, the numbers increased by 28 percent and reached to $146 million.

Kate Spade & Co. (NYSE:KATE), on the last trade day, August 12, 2014, started its stocks at a price of $41.10 and closed at a decreased price of $29.16. The company has a market capitalization of $4.92 billion with a price to earnings ratio of 30.10.