KATE SPADE & CO NEW YORK, Feb. 16, 2017 /PRNewswire/ -- Kate Spade & Company (NYSE: KATE) today announced results for the fourth quarter and full year ended December 31, 2016.
Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company, said: "Our solid fourth quarter and fiscal year performance demonstrate the strength of our differentiated business model, as we continued to gain market share and deliver strong growth despite a challenging retail environment. In 2016, we further strengthened our handbag portfolio, introduced new categories to our casual ready-to-wear classifications, and thoughtfully expanded our global store base, opening 52 net new owned and partner-operated stores. At the same time, we remain committed to maximizing value and are exploring strategic alternatives that are in the best interests of our Company and shareholders."
George Carrara, President and Chief Operating Officer of Kate Spade & Company, added: "We are pleased to report top-line growth of 14% for the full-year. In 2016, we delivered Adjusted EBITDA margin expansion of 220 basis points compared to the prior year, reflecting our ongoing focus on expense management, as well as the benefit of lower annual incentive compensation year-over-year. We generated robust cash flow and ended the year in a strong financial position, and with nearly $500 million in cash."
For the full year 2016 on a GAAP basis, the Company recorded income from continuing operations of $152 million, or $1.17 per diluted share, compared to income from continuing operations for the full year 2015 of $22 million, or $0.17 per diluted share. Diluted earnings per share from continuing operations for the full year 2016 were $0.70, using a normalized tax rate, compared to Adjusted diluted earnings per share of $0.48 for the full year 2015. Net sales for the full year 2016 were $1.381 billion, an increase of $139 million, or 11.2%, compared to the full year 2015. Net sales for the full year 2016 increased $166 million, or 13.7%, excluding sales for wind-down operations for the full year 2015. Adjusted EBITDA was $261 million for the full year 2016, compared to Adjusted EBITDA, excluding wind-down operations of $203 million for the full year 2015.
REVIEW OF STRATEGIC ALTERNATIVES
Kate Spade & Company's Board of Directors, together with management and in consultation with Perella Weinberg Partners as its financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison as its legal counsel, is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The Board plans to proceed in a timely manner, but has not set a definitive timetable for completion of this process. There can be no assurance that this review process will result in a transaction or other strategic alternative of any kind. The Company does not intend to disclose developments or provide updates on the progress or status of this process or discuss with investors the Company's results of operations until it deems further disclosure is appropriate or required. Additionally, no forward-looking guidance will be provided at this time.
FOURTH QUARTER RESULTS
Overall Results
Net sales for the fourth quarter of 2016 were $471 million, an increase of $42 million, or 9.8% compared to the fourth quarter of 2015. Net sales for the fourth quarter of 2016 increased $43 million, or 10.1%, excluding sales for wind-down operations for the fourth quarter of 2015. Fourth quarter 2016 direct-to-consumer comparable sales growth was 9.3%, or (1.5)% excluding eCommerce. Comparable sales per square foot for kate spade new york stores were $1,557 for the latest twelve months, compared to $1,615 for the twelve month period ended October 1, 2016, partially impacted by foreign exchange rates.
Gross profit as a percentage of net sales was 59.2% for the fourth quarter of 2016, compared to 60.2% for the fourth quarter of 2015. Gross profit for the fourth quarter of 2015 was 60.3%, excluding the results of wind-down operations.
Selling, general & administrative expenses were $184 million in the fourth quarter of both 2016 and 2015, or 39.1% and 43.0% of net sales, respectively. Excluding the results of wind-down operations and expenses associated with streamlining activities, selling, general & administrative expenses in the fourth quarter of 2015 were $182 million, or 42.4% of net sales.
Income from continuing operations was $87 million, or $0.67 per diluted share in the fourth quarter of 2016, compared to $62 million, or $0.48 per diluted share, in the fourth quarter of 2015. Diluted earnings per share from continuing operations in the fourth quarter of 2016 using a normalized tax rate were $0.41, compared to adjusted diluted earnings per share of $0.32 in the fourth quarter of 2015.
Segment Highlights
-- Kate Spade North America net sales for the fourth quarter of 2016 were
$407 million, an increase of $35 million, or 9.5% compared to the fourth
quarter of 2015. Kate Spade North America Segment Adjusted EBITDA was
$107 million (26.4% of net sales) for the fourth quarter of 2016
compared to $91 million (24.5% of net sales) for the fourth quarter of
2015.
-- Kate Spade International net sales for the fourth quarter of 2016 were
$59 million, an increase of $6 million, or 12.4% compared to the fourth
quarter of 2015. Net sales for the fourth quarter of 2016 increased $8
million, or 15.2%, excluding sales for wind-down operations for the
fourth quarter of 2015. Kate Spade International Segment Adjusted EBITDA
was $10 million (17.1% of net sales) for the fourth quarter of 2016 and
$4 million (8.6% of net sales) in 2015. Segment Adjusted EBITDA
Excluding Wind-Down Operations was $5 million (9.1% of adjusted net
sales) for the fourth quarter of 2015.
-- Adelington Design Group net sales for the fourth quarter of 2016 were $6
million, an increase of 2.3% compared to the fourth quarter of 2015.
Adelington Design Group Segment Adjusted EBITDA was $1 million (14.4% of
net sales) for the fourth quarter of 2016, compared to $2 million (32.3%
of net sales) for the fourth quarter of 2015. Segment Adjusted EBITDA
Excluding Wind-Down Operations was $1 million (26.6% of net sales) for
the fourth quarter of 2015.
Store Count Information
Q3 2016 Q4 2016 Q4 2016
Net Store Openings
------------------
North America Owned
Stores
-------------------
Specialty 108 - 108
--------- --- --- ---
Outlet 67 1 68
------ --- --- ---
Total North America
Owned Stores 175 1 176
------------------- --- --- ---
Average Square Feet (in
'000s) 403 409
----------------------- --- ---
International Owned
Stores
-------------------
Specialty 25 - 25
--------- --- --- ---
Outlet 14 - 14
------ --- --- ---
Concessions 54 - 54
----------- --- --- ---
Total International
Owned Stores 93 - 93
------------------- --- --- ---
Average Square Feet (in
'000s) 87 87
----------------------- --- ---
Total Owned Store Count 268 1 269
----------------------- --- --- ---
Average Owned Square
Feet (in '000s) 490 496
-------------------- --- ---
Partner Operated Stores 92 13 105
----------------------- --- --- ---
Greater China Joint
Venture Stores 42 3 45
------------------- --- --- ---
Total Partnered Store
Count 134 16 150
--------------------- --- --- ---
Total Store Count 402 17 419
----------------- --- --- ---
Total Licensee Operated
Partnered Stores 29 - 29
----------------------- --- --- ---
Total Store Footprint 431 17 448
--------------------- --- --- ---
CONFERENCE CALL INFORMATION
The Company will host a pre-recorded conference call at 8:30 a.m. Eastern time today to discuss its financial results for the fourth quarter and fiscal year 2016. The conference call will be limited to prepared remarks from Craig Leavitt, Chief Executive Officer, and George Carrara, President and Chief Operating Officer, and will not include a Q&A session.
The dial-in number is 1-888-694-4676 with pass code 70910517. The webcast 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 will be available in the Company's Form 10-K for the full year 2016 to be filed with the Securities and Exchange Commission.
PRESENTATION OF GAAP FINANCIAL INFORMATION
As the audit of the Company's 2016 financial statements is not complete, the results presented in this press release are estimated and preliminary, and, therefore, may change. No party has reviewed or audited the preliminary results presented in this release.
PRESENTATION OF NON-GAAP FINANCIAL INFORMATION AND KEY OPERATING METRICS
The income from continuing operations for 2016 and 2015 is presented on a GAAP basis and also adjusted by multiplying pretax income by a normalized tax rate. The Company presents the below-described Adjusted EBITDA measures, 2016 results using a normalized tax rate and 2015 adjusted results 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.
Adjusted income from continuing operations and Adjusted EBITDA for the fourth quarter and twelve months of 2015 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 and loss on settlement of note receivable. The adjusted results for 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. 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 presentation of its 2015 results that will provide investors with a means to compare those results to its 2016 results. 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, non-cash share-based compensation expense and unrealized and certain realized foreign currency transaction adjustments, net. 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 presentation of its 2015 results that will provide investors with a means to compare those results to its 2016 results. The Company presents non-GAAP financial measures because it uses such measures to monitor the performance of its business on a comparable basis and to determine certain levels of compensation. The Company believes the presentation of these measures enhances the ability of its investors to analyze trends in its business and provides them with a means to compare periods that may be affected by various items that might obscure trends or developments in its business. References to amounts "on a comparable basis" mean that those amounts exclude the impact of wind-down operations.
The Company determined that the Kate Spade Saturday, Jack Spade, Kate Spade Brazil and Adelington Design Group initiatives in 2015 did not represent a strategic shift in the Company's operations and therefore did not present these activities as discontinued operations.
The Company evaluates comparable sales productivity based on comparable net sales per average square foot, which is defined as net sales divided by the average of beginning and end of period gross square feet and excludes e-commerce net sales. The Company's policy regarding its calculation of comparable direct-to-consumer net sales is discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of its most recent Annual Report on Form 10-K filed with the SEC on March 1, 2016. The Company presents the above described key operating metrics 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.
ABOUT KATE SPADE & COMPANY
Kate Spade & Company (NYSE: KATE) operates principally under two global, multichannel lifestyle brands: kate spade new york and Jack Spade. The Company's four category pillars - women's, men's, children's and home - span demographics, genders and geographies. Known for crisp color, graphic prints and playful sophistication, kate spade new york aims to inspire a more interesting life. The kate spade new york collection includes the Madison Avenue, Broome Street and on purpose labels. Jack Spade offers a timeless and versatile assortment of bags, sportswear and tailored clothing founded on the aesthetic of simple, purposeful design. The Company also owns Adelington Design Group, a private brand jewelry design and development group. 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 plans and expectations for future periods are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Words such as "intend," "expect," "contemplate," "anticipate," "believe," "plan," "forecast," "target," "aim," "project," "on track," "are positioned to," "estimate," "may," "will," "should" and variations of such words and similar expressions and phrases are intended to identify such forward-looking statements. You should not place undue reliance on such forward-looking statements, as they are not guarantees of performance or results. 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 simply estimates reflecting the best judgment of our senior management and involve, and are subject to, a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from those suggested by the forward-looking statements. These risks are more fully discussed in the "Risk Factors" section and elsewhere in the Company's most recent Annual Report on Form 10-K filed with the SEC on March 1, 2016 and any subsequent quarterly reports on Form 10-Q. All subsequent written and oral forward-looking statements concerning the matters addressed herein and attributable to us or any person acting on our behalf are qualified by these cautionary statements. We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. 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 INCOME
(All amounts in thousands, except per common share data)
(Preliminary and Unaudited)
Three Months Ended Three Months Ended
December 31, 2016 % of January 2, 2016 % of
(13 Weeks) Sales (13 Weeks) Sales
--------- ----- --------- -----
Net Sales $470,837 100.0% $428,958 100.0%
Cost of goods sold 192,032 40.8% 170,870 39.8%
------- -------
Gross Profit 278,805 59.2% 258,088 60.2%
Selling, general & administrative expenses 184,062 39.1% 184,427 43.0%
------- -------
Operating Income 94,743 20.1% 73,661 17.2%
Other expense, net (2,195) (0.5)% (6,359) (1.5)%
Interest expense, net (4,861) (1.0)% (5,170) (1.2)%
------ ------
Income Before Provision for Income Taxes 87,687 18.6% 62,132 14.5%
Provision for income taxes 1,107 0.2% 624 0.1%
----- ---
Income from Continuing Operations 86,580 18.4% 61,508 14.3%
Discontinued operations, net of income taxes (1,033) (44)
------ ---
Net Income $85,547 $61,464
======= =======
Earnings per Share:
Basic
Income from Continuing Operations $0.68 $0.48
===== =====
Net Income $0.67 $0.48
===== =====
Diluted
Income from Continuing Operations $0.67 $0.48
===== =====
Net Income $0.66 $0.48
===== =====
Weighted Average Shares, Basic 128,139 127,703
Weighted Average Shares, Diluted 129,425 128,267
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per common share data)
(Preliminary and Unaudited)
Twelve Months Ended Twelve Months Ended
December 31, 2016 % of January 2, 2016 % of
(52 Weeks) Sales (52 Weeks) Sales
--------- ----- --------- -----
Net Sales $1,381,478 100.0% $1,242,720 100.0%
Cost of goods sold 554,558 40.1% 488,613 39.3%
------- -------
Gross Profit 826,920 59.9% 754,107 60.7%
Selling, general & administrative expenses 643,307 46.6% 687,709 55.3%
------- -------
Operating Income 183,613 13.3% 66,398 5.3%
Other expense, net (8,270) (0.6)% (11,137) (0.9)%
Loss on settlement of note receivable - - (9,873) (0.8)%
Interest expense, net (19,714) (1.4)% (19,152) (1.5)%
------- -------
Income Before Provision for Income Taxes 155,629 11.3% 26,236 2.1%
Provision for income taxes 4,071 0.3% 4,528 0.4%
----- -----
Income from Continuing Operations 151,558 11.0% 21,708 1.7%
Discontinued operations, net of income taxes 2,024 (4,621)
----- ------
Net Income $153,582 $17,087
======== =======
Earnings per Share:
Basic
Income from Continuing Operations $1.18 $0.17
===== =====
Net Income $1.20 $0.13
===== =====
Diluted
Income from Continuing Operations $1.17 $0.17
===== =====
Net Income $1.19 $0.13
===== =====
Weighted Average Shares, Basic 128,043 127,634
Weighted Average Shares, Diluted 129,164 128,222
KATE SPADE & COMPANY
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
(Preliminary and Unaudited)
December 31, 2016 January 2, 2016
----------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $478,536 $297,851
Accounts receivable - trade, net 77,487 96,850
Inventories, net 167,461 191,879
Other current assets 34,024 34,245
------ ------
Total current assets 757,508 620,825
------- -------
Property and Equipment, Net 167,192 173,963
Goodwill 50,045 48,730
Intangibles, Net 86,703 86,288
Other Assets 48,871 45,791
------ ------
Total Assets $1,110,319 $975,597
========== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term borrowings $3,664 $3,625
Other current liabilities 220,785 262,662
------- -------
Total current liabilities 224,449 266,287
------- -------
Long-Term Debt 389,742 393,168
Other Non-Current Liabilities 66,197 70,921
Stockholders' Equity 429,931 245,221
------- -------
Total Liabilities and Stockholders' Equity $1,110,319 $975,597
========== ========
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Preliminary and Unaudited)
Twelve Months Ended
-------------------
December 31, 2016 January 2, 2016
(52 Weeks) (52 Weeks)
--------- ---------
Cash Flows from Operating Activities:
Net income $153,582 $17,087
Adjustments to arrive at income from continuing operations (2,024) 4,621
------ -----
Income from continuing operations 151,558 21,708
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:
Depreciation and amortization 49,336 49,937
Loss on asset disposals and impairments, including streamlining initiatives, net 9,204 13,600
Deferred income taxes (1,110) 474
Share-based compensation 27,139 25,577
Loss on settlement of note receivable - 9,873
Foreign currency transaction losses, net 2,908 4,845
Equity losses of equity investees 6,450 6,694
Other, net (58) (281)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable - trade, net 19,809 (7,540)
Decrease (increase) in inventories, net 24,878 (42,540)
(Increase) decrease in other current and non-current assets (3,076) 5,597
(Decrease) increase in accounts payable (18,106) 23,911
(Decrease) increase in accrued expenses and other non-current liabilities (23,687) 7,773
Increase in income taxes payable 2,085 912
Net cash used in operating activities of discontinued operations (2,444) (14,964)
------ -------
Net cash provided by operating activities 244,886 105,576
------- -------
Cash Flows from Investing Activities:
Proceeds from sales of property and equipment - 816
Purchases of property and equipment (46,260) (55,084)
Proceeds from sales of joint venture interests, net (2,350) 17,621
Investments in and advances to equity investees (6,500) (5,000)
Payment for joint venture interest - (10,000)
Payments for in-store merchandise shops (2,889) (5,123)
Net proceeds from settlement of note receivable - 75,128
Purchase of trademarks (1,200) -
Other, net (45) 276
Net cash provided by investing activities of discontinued operations - 634
--- ---
Net cash (used in) provided by investing activities (59,244) 19,268
------- ------
Cash Flows from Financing Activities:
Proceeds from borrowings under revolving credit agreement - 2,000
Repayment of borrowings under revolving credit agreement - (8,000)
Repayment of Term Loan (4,000) (3,000)
Principal payments under capital lease obligations (513) (459)
Proceeds from exercise of stock options 2,631 2,464
Payment of deferred financing fees (1,275) (1,473)
------ ------
Net cash used in financing activities (3,157) (8,468)
------ ------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (1,800) (2,569)
Net Change in Cash and Cash Equivalents 180,685 113,807
Cash and Cash Equivalents at Beginning of Year 297,851 184,044
------- -------
Cash and Cash Equivalents at End of Year $478,536 $297,851
======== ========
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
(Preliminary and Unaudited)
Three Months Ended
December 31, 2016
(13 Weeks)
---------
Total Net Sales $470,837
KATE SPADE North America 406,584
KATE SPADE International 58,576
Adelington Design Group 5,677
Gross Profit 278,805
SG&A 184,062
Operating Income $94,743
Other expense, net (2,195)
Interest expense, net (4,861)
Provision for income taxes 1,107
Income from Continuing Operations $86,580
Discontinued operations, net of income taxes (1,033)
Net Income $85,547
Basic Earnings per Common Share from Continuing Operations $0.68
Diluted Earnings per Common Share from Continuing Operations $0.67
Reconciliation of Adjusted Income from Continuing Operations:
Net Income, per above $85,547
Less: discontinued operations, net of income taxes 1,033
Adjustment to provision for income taxes (34,024)
-------
Adjusted Income from Continuing Operations (a) $52,556
=======
Adjusted Basic Earnings per Common Share from Continuing Operations $0.41
=====
Adjusted Diluted Earnings per Common Share from Continuing Operations (b) $0.41
=====
Reconciliation of Adjusted EBITDA:
Net Income, per above $85,547
Adjustments:
Depreciation and amortization, asset impairments and losses on asset disposals, net (c) 19,099
Share-based compensation 4,911
Foreign currency adjustments, net 1,859
Interest expense, net 4,861
Provision for income taxes (1,107)
Discontinued operations, net of income taxes 1,033
-----
Adjusted EBITDA $118,417
========
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (d):
KATE SPADE North America $107,447
KATE SPADE International (e) 10,012
Adelington Design Group 818
Other (f) 140
---
Adjusted EBITDA $118,417
========
Adjusted EBITDA Margin
KATE SPADE North America 26.4%
KATE SPADE International (e) 17.1%
Adelington Design Group 14.4%
Kate Spade & Company 25.2%
-------------------- ----
_________________________
(a) Adjusted amount represents 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.
(b) Adjusted diluted earnings per share for the three months ended December 31, 2016 are based on 129,425 shares outstanding.
(c) Excludes amortization included in Interest expense, net.
(d) Segment Adjusted EBITDA excludes (i) depreciation and amortization and (ii) losses on asset disposals and impairments. The costs of all
corporate departments that serve the respective segment are fully allocated, other than non-cash share-based compensation expense.
The Company does not allocate amounts reported below Operating income to its reportable segments, other than equity 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.
(e) Amounts include equity in the losses of equity method investees of $476.
(f) Amount is Other expense, net as shown above, net of foreign currency transaction adjustment of $1,859 and equity in the losses of equity
method investees of $476.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
(Unaudited)
Adjusted Results
Streamlining Results of Wind-Down (Excluding Wind-
Reported (a) Initiatives (b) Adjusted Results Operations (c) Down Operations) (d)
----------- --------------- ---------------- ------------- -------------------
Three Months Ended January 2, 2016 (13 Weeks)
Total Net Sales $428,958 $428,958 $(1,153) $427,805
KATE SPADE North America 371,314 371,314 89 371,403
KATE SPADE International 52,095 52,095 (1,242) 50,853
Adelington Design Group 5,549 5,549 - 5,549
Gross Profit 258,088 258,088 (262) 257,826
SG&A 184,427 $(2,573) 181,854 (259) 181,595
Operating Income $73,661 $2,573 $76,234 $(3) $76,231
Other expense, net (6,359) 5,304 (1,055) (1,055)
Interest expense, net (5,170) (5,170) (5,170)
Provision for income taxes (e) 624 27,809 28,433 (1) 28,432
Income from Continuing Operations $61,508 $(19,932) $41,576 $(2) $41,574
Discontinued operations, net of income taxes (44)
Net Income $61,464
Basic Earnings per Common Share from Continuing Operations $0.48 $0.33 $0.33
Diluted Earnings per Common Share from Continuing Operations (f) $0.48 $0.32 $0.32
Reconciliation of Adjusted EBITDA:
Net Income, per above $61,464
Adjustments:
Other expense, net 6,359
Interest expense, net 5,170
Provision for income taxes (624)
Discontinued operations, net of income taxes 44
---
Operating Income $73,661 $2,573 $76,234 $(3) $76,231
Depreciation and amortization, asset impairments and losses on asset disposals, 16,219 16,219
net (g)
Share-based compensation, net 6,137 6,137
Other expense, net (h) (1,155) (1,155)
------ ------
Adjusted EBITDA $97,435 $(3) $97,432
======= === =======
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (i):
KATE SPADE North America $91,027 $143 $91,170
KATE SPADE International (j) 4,482 171 4,653
Adelington Design Group 1,795 (317) 1,478
Other (k) 131 131
--- ---
Adjusted EBITDA $97,435 $(3) $97,432
======= === =======
Adjusted EBITDA Margin
KATE SPADE North America 24.5% 24.5%
KATE SPADE International (j) 8.6% 9.1%
Adelington Design Group 32.3% 26.6%
Kate Spade & Company 22.7% 22.8%
-------------------- ---- ----
_________________________
(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 $2,370; and (ii) store
closure, other brand-exiting and acquisition related costs of $203.
(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 a comparable basis to its 2016 results.
(e) Adjusted amounts represent adjusted pretax income multiplied by a normalized tax rate of 40.0%, plus $0.4 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 January 2, 2016 are based on 128,267 shares outstanding.
(g) Excludes amortization included in Interest expense, net.
(h) Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of $3,908 and restructuring charges of
$1,296 included in
equity in the losses of equity method investees.
(i) 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, other than non-
cash share-based compensation expense. The Company does not allocate amounts reported below Operating income to its reportable segments,
other than adjusted
equity 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.
(j) Amounts include equity in the adjusted losses of equity method investees of $1,286.
(k) Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of $3,908 and equity in the losses of
equity method investees
of $2,582.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
(Preliminary and Unaudited)
Twelve Months Ended
December 31, 2016
(52 Weeks)
---------
Total Net Sales $1,381,478
KATE SPADE North America 1,156,373
KATE SPADE International 201,834
Adelington Design Group 23,271
Gross Profit 826,920
SG&A 643,307
Operating Income $183,613
Other expense, net (8,270)
Interest expense, net (19,714)
Provision for income taxes 4,071
Income from Continuing Operations $151,558
Discontinued operations, net of income taxes 2,024
Net Income $153,582
Basic Earnings per Common Share from Continuing Operations $1.18
Diluted Earnings per Common Share from Continuing Operations $1.17
Reconciliation of Adjusted Income from Continuing Operations:
Net Income, per above $153,582
Less: discontinued operations, net of income taxes (2,024)
Adjustment to provision for income taxes (60,931)
-------
Adjusted Income from Continuing Operations (a) $90,627
=======
Adjusted Basic Earnings per Common Share from Continuing Operations $0.71
=====
Adjusted Diluted Earnings per Common Share from Continuing Operations (b) $0.70
=====
Reconciliation of Adjusted EBITDA:
Net Income, per above $153,582
Adjustments:
Depreciation and amortization, asset impairments and losses on asset disposals, net (c) 54,986
Share-based compensation 27,139
Foreign currency adjustments, net 3,680
Interest expense, net 19,714
Provision for income taxes (4,071)
Discontinued operations, net of income taxes (2,024)
------
Adjusted EBITDA $261,148
========
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (d):
KATE SPADE North America $226,385
KATE SPADE International (e) 27,889
Adelington Design Group 5,014
Other (f) 1,860
-----
Adjusted EBITDA $261,148
========
Adjusted EBITDA Margin
KATE SPADE North America 19.6%
KATE SPADE International (e) 13.8%
Adelington Design Group 21.5%
Kate Spade & Company 18.9%
-------------------- ----
_________________________
(a) Adjusted amount represents 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.
(b) Adjusted diluted earnings per share for the twelve months ended December 31, 2016 are based on 129,164 shares outstanding.
(c) Excludes amortization included in Interest expense, net.
(d) Segment Adjusted EBITDA excludes (i) depreciation and amortization and (ii) losses on asset disposals and impairments. The costs of all
corporate departments that serve the respective segment are fully allocated, other than non-cash share-based compensation expense. The
Company does not allocate amounts reported below Operating income to its reportable segments, other than equity 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.
(e) Amounts include equity in the losses of equity method investees of $6,450.
(f) Amount is Other expense, net as shown above, net of foreign currency transaction adjustment of $3,680 and equity in the losses of equity
method investees of $6,450.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
(Unaudited)
Streamlining Adjusted Results
Initiatives and JV Results of Wind-Down (Excluding Wind-
Reported (a) Termination Fee (b) Adjusted Results Operations (c) Down Operations) (d)
----------- ------------------ ---------------- ------------- -------------------
Twelve Months Ended January 2, 2016 (52 Weeks)
Total Net Sales $1,242,720 $1,242,720 $(27,309) $1,215,411
KATE SPADE North America 1,031,123 1,031,123 (12,891) 1,018,232
KATE SPADE International 188,151 188,151 (12,701) 175,450
Adelington Design Group 23,446 23,446 (1,717) 21,729
Gross Profit 754,107 754,107 (11,389) 742,718
SG&A 687,709 $(61,317) 626,392 (15,066) 611,326
Operating Income $66,398 $61,317 $127,715 $3,677 $131,392
Other expense, net (11,137) 5,830 (5,307) (5,307)
Loss on settlement of note receivable (9,873) 9,873 - -
Interest expense, net (19,152) (19,152) (19,152)
Provision for income taxes (e) 4,528 37,412 41,940 1,471 43,411
Income from Continuing Operations $21,708 $39,608 $61,316 $2,206 $63,522
Discontinued operations, net of income taxes (4,621)
Net Income $17,087
Basic Earnings per Common Share from Continuing Operations $0.17 $0.48 $0.50
Diluted Earnings per Common Share from Continuing Operations (f) $0.17 $0.48 $0.50
Reconciliation of Adjusted EBITDA:
Net Income, per above $17,087
Adjustments:
Other expense, net 11,137
Loss on settlement of note receivable 9,873
Interest expense, net 19,152
Provision for income taxes (4,528)
Discontinued operations, net of income taxes 4,621
-----
Operating Income $66,398 $61,317 $127,715 $3,677 $131,392
Depreciation and amortization, asset impairments and losses on asset 51,699 (550) 51,149
disposals, net (g)
Share-based compensation, net (h) 25,271 25,271
Other expense, net (i) (4,910) (4,910)
------ ------
Adjusted EBITDA $199,775 $3,127 $202,902
======== ====== ========
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (j):
KATE SPADE North America $177,593 $3,074 $180,667
KATE SPADE International (k) 17,697 646 18,343
Adelington Design Group 4,523 (593) 3,930
Other (l) (38) (38)
--- ---
Adjusted EBITDA $199,775 $3,127 $202,902
======== ====== ========
Adjusted EBITDA Margin
KATE SPADE North America 17.2% 17.7%
KATE SPADE International (k) 9.4% 10.5%
Adelington Design Group 19.3% 18.1%
Kate Spade & Company 16.1% 16.7%
-------------------- ---- ----
_________________________
(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 $35,395; (ii) store closure, other brand-exiting and
acquisition related credits of $(78); 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 a comparable basis to its 2016 results.
(e) Adjusted amounts represent adjusted pretax income multiplied by a normalized tax rate of 40.0%, plus
$0.6 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 twelve months ended January 2, 2016 are based on 128,222
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
$4,405 and restructuring charges of $1,822 included in equity in the losses of equity method
investees.
(j) 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 twelve months ended January 2, 2016 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, other than non-cash share-based
compensation expense. The Company does not allocate amounts reported below Operating income to its
reportable segments, other than adjusted equity 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.
(k) Amounts include equity in the adjusted losses of equity method investees of $4,872.
(l) Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of
$4,405 and equity in the losses of equity method investees of $6,694.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(Dollars in thousands)
(Preliminary and Unaudited)
The following table provides reconciliations of Net Sales as reported to Net Sales excluding wind-down operations(a) in 2015.
Three Months Ended
------------------
December 31, 2016 January 2, 2016 Variance
(13 Weeks) (13 Weeks) $ %
--------- --------- --- ---
Total Company
Net Sales as reported $470,837 $428,958 $41,879 9.8%
Less: Net sales for wind-down operations (a) - (1,153)
--- ------
Adjusted Net Sales $470,837 $427,805 $43,032 10.1%
======== ========
KATE SPADE North America
Net Sales as reported $406,584 $371,314 $35,270 9.5%
Less: Net sales for wind-down operations (a) - 89
--- ---
Adjusted Net Sales $406,584 $371,403 $35,181 9.5%
======== ========
KATE SPADE International
Net Sales as reported $58,576 $52,095 $6,481 12.4%
Less: Net sales for wind-down operations (a) - (1,242)
--- ------
Adjusted Net Sales $58,576 $50,853 $7,723 15.2%
======= =======
Adelington Design Group
Net Sales as reported $5,677 $5,549 $128 2.3%
Less: Net sales for wind-down operations (a) - -
--- ---
Adjusted Net Sales $5,677 $5,549 $128 2.3%
====== ======
_________________________
(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).
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(Dollars in thousands)
(Preliminary and Unaudited)
The following table provides reconciliations of Net Sales as reported to Net Sales excluding wind-down operations(a) in 2015.
Twelve Months Ended
-------------------
December 31, 2016 January 2, 2016 Variance
(52 Weeks) (52 Weeks) $ %
--------- --------- --- ---
Total Company
Net Sales as reported $1,381,478 $1,242,720 $138,758 11.2%
Less: Net sales for wind-down operations (a) - (27,309)
--- -------
Adjusted Net Sales $1,381,478 $1,215,411 $166,067 13.7%
========== ==========
KATE SPADE North America
Net Sales as reported $1,156,373 $1,031,123 $125,250 12.1%
Less: Net sales for wind-down operations (a) - (12,891)
--- -------
Adjusted Net Sales $1,156,373 $1,018,232 $138,141 13.6%
========== ==========
KATE SPADE International
Net Sales as reported (b) $201,834 $188,151 $13,683 7.3%
Less: Net sales for wind-down operations (a) - (12,701)
--- -------
Adjusted Net Sales (b) $201,834 $175,450 $26,384 15.0%
======== ========
Adelington Design Group
Net Sales as reported $23,271 $23,446 $(175) (0.7)%
Less: Net sales for wind-down operations (a) - (1,717)
--- ------
Adjusted Net Sales $23,271 $21,729 $1,542 7.1%
======= =======
_________________________
(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) Includes $6.4 million of net sales for the twelve months ended January 2, 2016 related to the Hong
Kong, Macau and Taiwan territories, which were converted to a joint venture in the first quarter of
2015.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kate-spade--company-reports-fourth-quarter-and-full-year-2016-results-and-is-reviewing-strategic-alternatives-300408584.html
SOURCE Kate Spade & Company
