Fifth & Pacific Sells Lucky Brand to Focus on Kate Spade

Well, it was inevitable -- Fifth & Pacific (NYSE: KATE  ) has sold off Lucky Brand to Leonard Green & Partners for $225 million, leaving it with just Kate Spade and dropping it squarely in the growth division of the apparel retailer world. The company ditched Juicy Couture earlier this year, and analysts had been expecting Lucky to go sometime soon, as well. Kate Spade has been growing by leaps and bounds, and the slow and steady Lucky was holding Fifth & Pacific back from realizing its growth dream. Farewell, Lucky -- we hardly knew you.

Fifth & Pacific to focus on Kate Spade
The official release from Fifth & Pacific said it all -- "This is all about bringing Kate Spade to its full potential." While Kate Spade has been growing by leaps and bounds, Lucky and Juicy languished. In the company's most recent quarterly release, it said that comparable sales had grown by 31% over 2012 at Kate Spade. Lucky and Juicy had flat and declining comparable sales, respectively .

Kate Spade's rocket to the top has allowed Fifth & Pacific to launch a spin-off brand, Kate Spade Saturday, which is aimed at a younger, less affluent crowd. That secondary brand is already growing, along with Kate Spade's international business.

Lucky, on the other hand, had reached a good selling point. The business had some room to grow on a sales per square foot basis, and the underlying business was strong and steady. Revenue grew 7.3% last quarter, and though the EBITDA ratio fell, the company had made some investments in the brand and was expecting a rise in the fourth quarter .

Kate Spade's competition
With Lucky looking like a strong business, I imagine Fifth & Pacific had very little trouble selling Leonard Green on the brand. The private equity firm already owns chunks of J. Crew, Neiman Marcus, and Topshop, among many others .

Now that Kate Spade is all on its lonesome, it's going to have to compete with Michael Kors (NYSE: KORS  ) and Coach (NYSE: COH  ) without a safety net. Kors has been dominating the luxury handbag and accessory market recently, putting up a 21% increase in comparable sales last quarter, while pushing operating margin up, as well . Coach has had a rough year, and a burst of focus and activity from Kate Spade isn't going to help.

The handbag maker has struggled in North America, where comparable sales have dropped, pulling the company's earnings down with them . Kate Spade, on the other hand, is resonating with customers, and pulling in new fans with its Saturday brand. With a new focus on growing the business, Coach looks even worse off than it did earlier this year.

Good news for Fifth & Pacific investors
While the announcement of the sale didn't have much impact on the stock's price, the business is really going to benefit from its slimmed down look. Kate Spade is going to be able to get more competitive with Kors and Coach, focusing on growing its store base and competing on price and style. The influx of cash from the sales of Lucky and Juicy should help jump start some expansion, and the business should see a drop in backend costs over the next few years.

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