KATE SPADE & CO NEW YORK, Nov. 2, 2016 /PRNewswire/ -- Kate Spade & Company (NYSE: KATE) today announced results for the third quarter ended October 1, 2016.
Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company, said: "In the third quarter, several macroeconomic factors, including a challenging retail environment and continuing tourist headwinds, impacted our results. That said, we are making solid progress on several strategies that are continuing to drive growth in our business, which is reflected in the consumer's strong response to our collections at full-price. We remain focused on the factors we can control as we continue to grow our business and execute our long-term strategy, maintaining our commitment to become a $4 billion business at retail."
George Carrara, President and Chief Operating Officer of Kate Spade & Company, added: "In the third quarter, we delivered direct-to-consumer comparable sales growth of 7% and top-line growth of 15%. While gross margin pressures have increased in our off-price business, we were able to offset these conditions through strong expense controls. We expect that these efforts, which enabled us to achieve Adjusted EBITDA margin expansion for the third quarter, will help us achieve our 2016 guidance. We remain confident in our long-term strategy."
For the first nine months of 2016 on a GAAP basis, the Company recorded income from continuing operations of $65 million, or $0.50 per diluted share, compared to a loss from continuing operations for the first nine months of 2015 of $(40) million, or $(0.31) per diluted share. Diluted earnings per share from continuing operations in the first nine months of 2016 were $0.29, using a normalized tax rate, compared to Adjusted diluted earnings per share of $0.15 in the first nine months of 2015. Net sales for the first nine months of 2016 were $911 million, an increase of $97 million, or 11.9%, compared to the first nine months of 2015. Net sales for the first nine months of 2016 increased $123 million, or 15.6%, excluding sales for wind-down operations for the first nine months of 2015. Adjusted EBITDA was $143 million for the first nine months of 2016, compared to Adjusted EBITDA, excluding wind-down operations of $105 million for the first nine months of 2015.
THIRD QUARTER RESULTS
Overall Results
Net sales for the third quarter of 2016 were $317 million, an increase of $39 million, or 14.1% compared to the third quarter of 2015. Net sales for the third quarter of 2016 increased $41 million, or 15.0%, excluding sales for wind-down operations for the third quarter of 2015. Third quarter 2016 direct-to-consumer comparable sales growth was 6.7%, or flat excluding eCommerce. Comparable sales per square foot for kate spade new york stores were $1,615 for the latest twelve months, compared to $1,619 for the twelve month period ended July 2, 2016.
Gross profit as a percentage of net sales was 59.4% for the third quarter of 2016, compared to 61.2% for the third quarter of 2015.
Selling, general & administrative expenses were $151 million, or 47.7% of net sales in the third quarter of 2016, compared to $157 million, or 56.8% of net sales in the third quarter of 2015. Selling, general & administrative expenses in the third quarter of 2015 were $150 million, or 54.3% of net sales, excluding the results of wind-down operations and expenses associated with streamlining activities.
Income from continuing operations was $30 million, or $0.23 per diluted share in the third quarter of 2016, compared to $5 million, or $0.04 per diluted share, in the third quarter of 2015. Diluted earnings per share from continuing operations in the third quarter of 2016 using a normalized tax rate were $0.13, compared to adjusted diluted earnings per share of $0.06 in the third quarter of 2015.
Segment Highlights
-- Kate Spade North America net sales for the third quarter of 2016 were
$260 million, an increase of $31 million, or 13.7% compared to the third
quarter of 2015. Net sales for the third quarter of 2016 increased $31
million, or 13.8%, excluding sales for wind-down operations for the
third quarter of 2015. Kate Spade North America Segment Adjusted EBITDA
was $47 million (18.1% of net sales) for the third quarter of 2016
compared to $31 million (13.4% of net sales) for the third quarter of
2015. Segment Adjusted EBITDA Excluding Wind-Down Operations was $31
million (13.5% of adjusted net sales) for the third quarter of 2015.
-- Kate Spade International net sales for the third quarter of 2016 were
$51 million, an increase of $8 million, or 18.9% compared to the third
quarter of 2015. Net sales for the third quarter of 2016 increased $10
million, or 24.3%, excluding sales for wind-down operations for the
third quarter of 2015. Kate Spade International Segment Adjusted EBITDA
was $5 million for the third quarter of 2016 and 2015 (10.4% and 11.2%
of net sales, respectively). Segment Adjusted EBITDA Excluding Wind-Down
Operations was $5 million (12.0% of adjusted net sales) for the third
quarter of 2015.
-- Adelington Design Group net sales for the third quarter of 2016 were $6
million, a decrease of (2.2)% compared to the third quarter of 2015.
Adelington Design Group Segment Adjusted EBITDA was $1 million for the
third quarter of 2016 and 2015 (18.7% and 18.9% of net sales,
respectively). Segment Adjusted EBITDA Excluding Wind-Down Operations
was $1 million (15.6% of net sales) for the third quarter of 2015.
Store Count Information
Q3 2016
Q2 2016 Net Store Openings Q3 2016
------- ------------------ -------
North America Owned
Stores
-------------------
Specialty 108 - 108
--------- --- --- ---
Outlet 65 2 67
------ --- --- ---
Total North America
Owned Stores 173 2 175
------------------- --- --- ---
Average Square Feet (in
'000s) 391 403
----------------------- --- ---
International Owned
Stores
-------------------
Specialty 25 - 25
--------- --- --- ---
Outlet 14 - 14
------ --- --- ---
Concessions 55 (1) 54
----------- --- --- ---
Total International
Owned Stores 94 (1) 93
------------------- --- --- ---
Average Square Feet (in
'000s) 87 87
----------------------- --- ---
Total Owned Store Count 267 1 268
----------------------- --- --- ---
Average Owned Square
Feet (in '000s) 478 490
-------------------- --- ---
Partner Operated Stores 87 5 92
----------------------- --- --- ---
Greater China Joint
Venture Stores 43 (1) 42
------------------- --- --- ---
Total Partnered Store
Count 130 4 134
--------------------- --- --- ---
Total Store Count 397 5 402
----------------- --- --- ---
Total Licensee Operated
Partnered Stores 29 - 29
----------------------- --- --- ---
Total Store Footprint 426 5 431
--------------------- --- --- ---
2016 GUIDANCE
The Company expects the following:
Net Sales $1.370B - $1.400B
--------- -----------------
Adjusted EBITDA * $242M - $260M
---------------- -------------
Diluted Earnings Per Share ** $0.63 - $0.70
---------------------------- -------------
DTC Comparable Sales Growth high single-digit to
low double-digit
growth
--------------------------- --------------------
Capital Expenditures $65M - $70M
-------------------- -----------
Planned Net New Store Openings (Company Owned & Partners) ~ 40 - 45
-------------------------------------------------------- ---------
2015 Year End NOL Balance $739M
------------------------- -----
*Adjusted EBITDA, as presented in
the Company's 2016 guidance,
excludes depreciation and
amortization, losses on asset
disposals and impairments, non-
cash share-based compensation
expense, income tax provision
(benefit), interest expense, net
and unrealized and certain realized
foreign currency gains (losses).
** Diluted earnings per share
estimated using a normalized tax
rate of 40%.
RECONCILIATION FROM ADJUSTED EBITDA TO EPS
Range
-----
In millions, except per common share data
-----------------------------------------
2016 Adjusted EBITDA * $242 - $260
Less: Share-based compensation, net ** 33 - 34
Depreciation and amortization, net 52 - 54
Interest expense, net 21 - 21
--- ---
Pretax income 136 - 151
Provision for income taxes at 40% rate 54 - 60
--- ---
Income from continuing operations $82 - $91
=== ===
Diluted shares outstanding 130 130
Diluted EPS assuming 40% tax rate $0.63 - $0.70
* Adjusted EBITDA includes $(7
- 8) million in Other expense,
net related to the Company's
equity in the losses of its
equity method investees.
** Included in SG&A, but
excluded from Adjusted
EBITDA.
CONFERENCE CALL INFORMATION
The Company will host a conference call at 8:30 a.m. Eastern time today to discuss its results for the third quarter 2016. The dial-in number is 1-888-694-4676 with pass code 87844308. 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 is available in the Company's Form 10-Q for the third quarter 2016, to be filed with the Securities and Exchange Commission.
The Company expects to report fourth quarter 2016 financial results on Thursday, February 23, 2017.
PRESENTATION OF NON-GAAP FINANCIAL INFORMATION AND KEY OPERATING METRICS
The income (loss) from continuing operations for 2016 and 2015 is presented on a GAAP basis and also adjusted by multiplying pretax income (loss) 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 (loss) from continuing operations and Adjusted EBITDA for the third quarter and first nine 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 OPERATIONS
(All amounts in thousands, except per common share data)
Three Months Ended Three Months Ended
October 1, 2016 % of October 3, 2015 % of
(13 Weeks) Sales (13 Weeks) Sales
--------- ----- --------- -----
Net Sales $316,528 100.0% $277,328 100.0%
Cost of goods sold 128,600 40.6% 107,514 38.8%
------- -------
Gross Profit 187,928 59.4% 169,814 61.2%
Selling, general & administrative expenses 150,826 47.7% 157,497 56.8%
------- -------
Operating Income 37,102 11.7% 12,317 4.4%
Other expense, net (2,735) (0.9)% (1,560) (0.6)%
Interest expense, net (4,920) (1.6)% (5,274) (1.9)%
------ ------
Income Before (Benefit) Provision for Income Taxes 29,447 9.3% 5,483 2.0%
(Benefit) provision for income taxes (56) - 973 0.4%
--- ---
Income from Continuing Operations 29,503 9.3% 4,510 1.6%
Discontinued operations, net of income taxes 123 (2,207)
--- ------
Net Income $29,626 $2,303
======= ======
Earnings per Share:
Basic
Income from Continuing Operations $0.23 $0.04
===== =====
Net Income $0.23 $0.02
===== =====
Diluted
Income from Continuing Operations $0.23 $0.04
===== =====
Net Income $0.23 $0.02
===== =====
Weighted Average Shares, Basic 128,101 127,682
Weighted Average Shares, Diluted 129,451 128,118
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per common share data)
Nine Months Ended Nine Months Ended
October 1, 2016 % of October 3, 2015 % of
(39 Weeks) Sales (39 Weeks) Sales
--------- ----- --------- -----
Net Sales $910,641 100.0% $813,762 100.0%
Cost of goods sold 362,526 39.8% 317,743 39.0%
------- -------
Gross Profit 548,115 60.2% 496,019 61.0%
Selling, general & administrative expenses 459,245 50.4% 503,282 61.8%
------- -------
Operating Income (Loss) 88,870 9.8% (7,263) (0.9)%
Other expense, net (6,075) (0.7)% (4,778) (0.6)%
Loss on settlement of note receivable - - (9,873) (1.2)%
Interest expense, net (14,853) (1.6)% (13,982) (1.7)%
------- -------
Income (Loss) Before Provision for Income Taxes 67,942 7.5% (35,896) (4.4)%
Provision for income taxes 2,964 0.3% 3,904 0.5%
----- -----
Income (Loss) from Continuing Operations 64,978 7.1% (39,800) (4.9)%
Discontinued operations, net of income taxes 3,057 (4,577)
----- ------
Net Income (Loss) $68,035 $(44,377)
======= ========
Earnings per Share:
Basic
Income (Loss) from Continuing Operations $0.51 $(0.31)
===== ======
Net Income (Loss) $0.53 $(0.35)
===== ======
Diluted
Income (Loss) from Continuing Operations $0.50 $(0.31)
===== ======
Net Income (Loss) $0.53 $(0.35)
===== ======
Weighted Average Shares, Basic 128,011 127,611
Weighted Average Shares, Diluted (a) 129,077 127,611
__________________________________
(a) Because the Company incurred a loss from continuing operations for the
nine months ended October 3, 2015, all potentially dilutive shares are
antidilutive. Accordingly, basic and diluted weighted average shares
outstanding are equal for such period.
KATE SPADE & COMPANY
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
October 1, 2016 October 3, 2015
--------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $308,101 $219,659
Accounts receivable - trade, net 69,735 58,893
Inventories, net 262,622 248,407
Other current assets 36,588 35,524
------ ------
Total current assets 677,046 562,483
------- -------
Property and Equipment, Net 179,272 177,333
Goodwill 56,654 48,790
Intangibles, Net 86,851 87,204
Other Assets 51,128 41,491
------ ------
Total Assets $1,050,951 $917,301
========== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term borrowings $3,628 $3,609
Other current liabilities 240,104 279,159
------- -------
Total current liabilities 243,732 282,768
------- -------
Long-Term Debt 390,604 393,017
Other Non-Current Liabilities 71,484 68,100
Stockholders' Equity 345,131 173,416
------- -------
Total Liabilities and Stockholders'
Equity $1,050,951 $917,301
========== ========
KATE SPADE & COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Nine Months Ended
-----------------
October 1, 2016 October 3, 2015
(39 Weeks) (39 Weeks)
--------- ---------
Cash Flows from Operating Activities:
Net income (loss) $68,035 $(44,377)
Adjustments to arrive at income (loss) from
continuing operations (3,057) 4,577
------ -----
Income (loss) from continuing operations 64,978 (39,800)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
operating activities:
Depreciation and amortization 36,404 36,837
Loss on asset disposals and impairments,
including streamlining initiatives, net 2,043 8,631
Share-based compensation 22,228 19,440
Loss on settlement of note receivable - 9,873
Foreign currency transaction (gains) losses, net (5,936) 609
Equity losses of equity investees 5,974 4,111
Other, net 40 (248)
Changes in assets and liabilities:
Decrease in accounts receivable - trade, net 29,202 30,588
Increase in inventories, net (65,467) (98,924)
(Increase) decrease in other current and non-
current assets (4,215) 7,740
Increase in accounts payable 9,999 46,642
Decrease in accrued expenses and other non-
current liabilities (34,244) (7,512)
Net change in income tax assets and liabilities 764 1,331
Net cash used in operating activities of
discontinued operations (1,302) (10,845)
------ -------
Net cash provided by operating activities 60,468 8,473
------ -----
Cash Flows from Investing Activities:
Proceeds from sales of property and equipment - 816
Purchases of property and equipment (37,031) (40,775)
Proceeds from sales of joint venture interests,
net (2,350) 19,874
Investments in and advances to equity investees (6,500) (5,000)
Payment for joint venture interest - (10,000)
Payments for in-store merchandise shops (1,478) (4,858)
Net proceeds from settlement of note receivable - 75,128
Purchase of trademarks (1,200) -
Other, net - 347
Net cash provided by investing activities of
discontinued operations - 668
--- ---
Net cash (used in) provided by investing
activities (48,559) 36,200
------- ------
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 (3,000) (3,000)
Principal payments under capital lease
obligations (380) (339)
Proceeds from exercise of stock options 2,365 2,428
Payment of deferred financing fees (835) (1,159)
---- ------
Net cash used in financing activities (1,850) (8,070)
------ ------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents 191 (988)
Net Change in Cash and Cash Equivalents 10,250 35,615
Cash and Cash Equivalents at Beginning of Period 297,851 184,044
------- -------
Cash and Cash Equivalents at End of Period $308,101 $219,659
======== ========
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
Three Months Ended
October 1, 2016
(13 Weeks)
---------
Total Net Sales $316,528
KATE SPADE North America 259,734
KATE SPADE International 50,958
Adelington Design Group 5,836
Gross Profit 187,928
SG&A 150,826
Operating Income $37,102
-------
Other expense, net (2,735)
Interest expense, net (4,920)
Benefit for income taxes (56)
---
Income from Continuing Operations $29,503
=======
Discontinued operations, net of income taxes 123
Net Income $29,626
=======
Basic Earnings per Common Share from Continuing Operations $0.23
=====
Diluted Earnings per Common Share from Continuing Operations $0.23
=====
Reconciliation of Adjusted Income from Continuing Operations:
Net Income, per above $29,626
Less: discontinued operations, net of income taxes (123)
Adjustment to provision for income taxes (13,031)
-------
Adjusted Income from Continuing Operations (a) $16,472
=======
Adjusted Basic Earnings per Common Share from Continuing Operations $0.13
=====
Adjusted Diluted Earnings per Common Share from Continuing Operations (b) $0.13
=====
Reconciliation of Adjusted EBITDA:
Net Income, per above $29,626
Adjustments:
Depreciation and amortization, asset impairments and losses on asset disposals, net (c) 12,886
Share-based compensation 6,072
Foreign currency adjustments, net 584
Interest expense, net 4,920
Benefit for income taxes 56
Discontinued operations, net of income taxes (123)
----
Adjusted EBITDA $53,909
=======
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (d):
KATE SPADE North America $46,958
KATE SPADE International (e) 5,287
Adelington Design Group 1,089
Other (f) 575
---
Adjusted EBITDA $53,909
=======
Adjusted EBITDA Margin
KATE SPADE North America 18.1%
KATE SPADE International (e) 10.4%
Adelington Design Group 18.7%
Kate Spade & Company 17.0%
-------------------- ----
__________________________________
(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 October
1, 2016 are based on 129,451 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
$2,726.
(f) Amount is Other expense, net as shown above, net of foreign currency
transaction adjustment of $584 and equity in the losses of equity
method investees of $2,726.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
Adjusted Results
Streamlining Results of Wind-Down (Excluding Wind-
Reported (a) Initiatives
(b) Adjusted Results Operations (c) 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
====== ====== ====== ==== ======
Discontinued operations, net of income taxes (2,207)
Net Income $2,303
======
Basic Earnings per Common Share from Continuing Operations $0.04 $0.06 $0.06
===== ===== =====
Diluted Earnings per Common Share from Continuing Operations (f) $0.04 $0.06 $0.06
===== ===== =====
Reconciliation of Adjusted EBITDA:
Net Income, per above $2,303
Adjustments:
Other expense, net 1,560
Interest expense, net 5,274
Provision for income taxes (973)
Discontinued operations, net of income taxes 2,207
-----
Operating Income $12,317 $6,684 $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
======= ==== =======
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (j):
KATE SPADE North America $30,713 $52 $30,765
KATE SPADE International (k) 4,793 116 4,909
Adelington Design Group 1,127 (199) 928
Other (l) (172) (172)
---- ----
Adjusted EBITDA $36,461 $(31) $36,430
======= ==== =======
Adjusted EBITDA Margin
KATE SPADE North America 13.4% 13.5%
KATE SPADE International (k) 11.2% 12.0%
Adelington Design Group 18.9% 15.6%
Kate Spade & Company 13.1% 13.2%
-------------------- ---- ----
__________________________________
(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 a comparable basis to its
2016 results.
(e) Adjusted amounts represent adjusted pretax income multiplied by a
normalized tax rate of 40.0%, plus $0.1 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) 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.
(k) Amounts include equity in the adjusted losses of equity method
investees of $915.
(l) 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 common share data)
Nine Months Ended
October 1, 2016
(39 Weeks)
---------
Total Net Sales $910,641
KATE SPADE North America 749,789
KATE SPADE International 143,258
Adelington Design Group 17,594
Gross Profit 548,115
SG&A 459,245
Operating Income $88,870
-------
Other expense, net (6,075)
Interest expense, net (14,853)
Provision for income taxes 2,964
-----
Income from Continuing Operations $64,978
=======
Discontinued operations, net of income taxes 3,057
Net Income $68,035
=======
Basic Earnings per Common Share from Continuing Operations $0.51
=====
Diluted Earnings per Common Share from Continuing Operations $0.50
=====
Reconciliation of Adjusted Income from Continuing Operations:
Net Income, per above $68,035
Less: discontinued operations, net of income taxes (3,057)
Adjustment to provision for income taxes (26,907)
-------
Adjusted Income from Continuing Operations (a) $38,071
=======
Adjusted Basic Earnings per Common Share from Continuing Operations $0.30
=====
Adjusted Diluted Earnings per Common Share from Continuing Operations (b) $0.29
=====
Reconciliation of Adjusted EBITDA:
Net Income, per above $68,035
Adjustments:
Depreciation and amortization, asset impairments and losses on asset disposals, net
(c) 35,887
Share-based compensation 22,228
Foreign currency adjustments, net 1,821
Interest expense, net 14,853
Provision for income taxes (2,964)
Discontinued operations, net of income taxes (3,057)
------
Adjusted EBITDA $142,731
========
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (d):
KATE SPADE North America $118,938
KATE SPADE International (e) 17,877
Adelington Design Group 4,196
Other (f) 1,720
-----
Adjusted EBITDA $142,731
========
Adjusted EBITDA Margin
KATE SPADE North America 15.9%
KATE SPADE International (e) 12.5%
Adelington Design Group 23.8%
Kate Spade & Company 15.7%
-------------------- ----
__________________________________
(a) Adjusted amount represents pretax
income multiplied by a normalized
tax rate of 40.0%, plus $0.3 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 nine months ended October 1,
2016 are based on 129,077 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
$5,974.
(f) Amount is Other expense, net as shown
above, net of foreign currency
transaction adjustment of $1,821 and
equity in the losses of equity
method investees of $5,974.
KATE SPADE & COMPANY
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(All amounts in thousands, except per common share data)
Streamlining Adjusted Results
Initiatives and JV Results of Wind-Down (Excluding Wind-
Reported (a) Termination Fee (b) Adjusted Results Operations (c) 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
======== ======= ======= ====== =======
Discontinued operations, net of income taxes (4,577)
Net Loss $(44,377)
========
Basic Earnings per Common Share from Continuing Operations $(0.31) $0.15 $0.17
====== ===== =====
Diluted Earnings per Common Share from Continuing Operations (f) $(0.31) $0.15 $0.17
====== ===== =====
Reconciliation of Adjusted EBITDA:
Net Loss, per above $(44,377)
Adjustments:
Other expense, net 4,778
Loss on settlement of note receivable 9,873
Interest expense, net 13,982
Provision for income taxes (3,904)
Discontinued operations, net of income taxes 4,577
-----
Operating (Loss) Income $(7,263) $58,744 $51,481 $3,680 $55,161
Depreciation and amortization, asset impairments and losses on 35,480 (550) 34,930
asset disposals, net (g)
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
======== ====== ========
Adjusted EBITDA
Reportable Segments Adjusted EBITDA (j):
KATE SPADE North America $86,566 $2,931 $89,497
KATE SPADE International (k) 13,215 475 13,690
Adelington Design Group 2,728 (276) 2,452
Other (l) (169) (169)
---- ----
Adjusted EBITDA $102,340 $3,130 $105,470
======== ====== ========
Adjusted EBITDA Margin
KATE SPADE North America 13.1% 13.8%
KATE SPADE International (k) 9.7% 11.0%
Adelington Design Group 15.2% 15.2%
Kate Spade & Company 12.6% 13.4%
-------------------- ---- ----
__________________________________
(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 a comparable basis to its
2016 results.
(e) Adjusted amounts represent adjusted pretax income multiplied by a
normalized tax rate of 40.0%, plus $0.2 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) 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, other than non-cash share-based compensation expense.
The Company does not allocate amounts reported below Operating (loss)
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 $3,586.
(l) 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
(Dollars in thousands)
The following table provides reconciliations of Net Sales as reported to Net Sales excluding wind-down operations(a) in 2015.
Three Months Ended
------------------
October 1, 2016 October 3, 2015 Variance
(13 Weeks) (13 Weeks) $ %
--------- --------- --- ---
Total Company
Net Sales as reported $316,528 $277,328 $39,200 14.1%
Less: Net sales for wind-down operations (a) - (2,058)
--- ------
Adjusted Net Sales $316,528 $275,270 $41,258 15.0%
======== ========
KATE SPADE North America
Net Sales as reported $259,734 $228,493 $31,241 13.7%
Less: Net sales for wind-down operations (a) - (187)
--- ----
Adjusted Net Sales $259,734 $228,306 $31,428 13.8%
======== ========
KATE SPADE International
Net Sales as reported $50,958 $42,870 $8,088 18.9%
Less: Net sales for wind-down operations (a) - (1,871)
--- ------
Adjusted Net Sales $50,958 $40,999 $9,959 24.3%
======= =======
Adelington Design Group
Net Sales as reported $5,836 $5,965 $(129) (2.2)%
Less: Net sales for wind-down operations (a) - -
--- ---
Adjusted Net Sales $5,836 $5,965 $(129) (2.2)%
====== ======
__________________________________
(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)
The following table provides reconciliations of Net Sales as reported to Net Sales excluding wind-down operations(a) in 2015.
Nine Months Ended
-----------------
October 1, 2016 October 3, 2015 Variance
(39 Weeks) (39 Weeks) $ %
--------- --------- --- ---
Total Company
Net Sales as reported $910,641 $813,762 $96,879 11.9%
Less: Net sales for wind-down operations (a) - (26,156)
--- -------
Adjusted Net Sales $910,641 $787,606 $123,035 15.6%
======== ========
KATE SPADE North America
Net Sales as reported $749,789 $659,809 $89,980 13.6%
Less: Net sales for wind-down operations (a) - (12,980)
--- -------
Adjusted Net Sales $749,789 $646,829 $102,960 15.9%
======== ========
KATE SPADE International
Net Sales as reported (b) $143,258 $136,056 $7,202 5.3%
Less: Net sales for wind-down operations (a) - (11,459)
--- -------
Adjusted Net Sales (b) $143,258 $124,597 $18,661 15.0%
======== ========
Adelington Design Group
Net Sales as reported $17,594 $17,897 $(303) (1.7)%
Less: Net sales for wind-down operations (a) - (1,717)
--- ------
Adjusted Net Sales $17,594 $16,180 $1,414 8.7%
======= =======
__________________________________
(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 nine months ended October 3, 2015
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-third-quarter-2016-results-300355451.html
SOURCE Kate Spade & Company
