The last of the premium handbag companies to report for the fourth-quarter releases results before opening bell on Tuesday, Kate Spade (NYSE:KATE) currently has an Estimize EPS consensus of $0.26, a penny below the Wall Street consensus, suggesting the Estimize community is looking for a miss. While this denotes EPS growth of 73% over Q4 2013, revenues are expected to show an 8% decline. So what’s going on here?
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Kate Spade admittedly had to offer deep discounts over the holiday season to compete with the likes of Coach (NYSE:COH) and Michael Kors (NYSE:KORS). At times, those discounts were as high as 50% off. But the company wasn’t alone, because its competitors had to offer the same to drum up traffic. This is just another sign that specialty retail names aren’t getting as much of the love during the current low gas/improving employment environment, which should translate to great things for the retailers. Consumers seem more willing to allocate disposable income towards electronics.
The company also recently announced the closing of its Kate Spade Saturday and Jack Spade lower-priced offshoots. Lower-priced spin-offs, which were all the rage during the recession as a means to garner more business and woo younger shoppers, offer thinner profit margins, but more alarmingly, they dilute the premium brand, making the items less special. Coach struggled with this when it opened outlet stores, and there are some beginning signs that Kors is heading in this direction too, as products become too accessible. In 2015, specialty retailers will focus more closely on their premium brands as a means of holding on to their high-end consumers.
