It looks like Juicy Couture and Lucky Brand have become too burdensome for Fifth and Pacific (KATE) to handle. The company is reportedly looking to sell off the brands, leaving its portfolio centered around the fast-rising Kate Spade brand. Lucky has had some success in the past year, though Juicy has languished, stuck with the velour tracksuits of yesterday. While Fifth and Pacific hasn't confirmed the rumors, the sale would make a lot of sense, and likely leave the company better off.
The Kate phenomenon
The biggest benefit to losing the brands would be the freedom it gives Fifth and Pacific to focus on its leading brand. Kate Spade had a 27% increase in direct-to-consumer comparable sales last quarter. The company has made the brand the focus of most of its recent presentations, going so far as to have an investors' day in March that focused solely on Kate Spade. Conversely, Lucky saw only a 3% increase in comparable sales, and Juicy had a 2% decline.
Kate Spade has been the clear winner, competing well with both Coach (TPR 0.03%) and Michael Kors (CPRI -0.11%). While Kors saw a much larger jump in comparable sales -- 41% last quarter -- Kate's increase is nothing to be overlooked. It far outpaced the 2% drop Coach's North American stores experienced last quarter.
News of the potential sale sounded great to investors, and the stock jumped 7% during the day yesterday. That's largely due to the fact that Fifth and Pacific would be free of the drag that Juicy has been exerting on the company. Management forecast negative sales growth for the brand in the coming year.
A good buy
Even though Juicy and Lucky have been lackluster recently, both brands still have a lot of recognition and would make a nice addition to many portfolios. While Fifth and Pacific hasn't commented on the rumors yet, it would make sense to see both brands sold off to the same buyer, with Lucky sweetening the deal and covering for the weaknesses of Juicy. EBITDA increased at Lucky by 37% over the last year, helping to offset the 62% decline at Juicy.
As more details emerge, this will surely turn into better news for Fifth and Pacific shareholders. The company is reportedly sending out detailed information to sellers in the next week, and the sale could move quickly after that. While it's still early, I wouldn't be surprised to see a sale before the end of May. Keep your eyes on this one.
