Why Shares of Kate Spade & Co. Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Kate Spade & Co. (NYSE: KATE  ) were looking stylish today, gaining as much as 11% today after delivering a promising first-quarter earnings report.

So what: The fashion label saw improving results after it recently shed brands including Lucky Brand and Juicy Couture to focus on its namesake Kate Spade line, best known for handbags. Direct-to-consumer comparable sales were up 22%, while sales of its Kate Spade brand jumped 54% to $217 million, indicating Kate Spade's growth potential. On the bottom line, the company, formerly known as Fifth & Pacific, reported an adjusted loss of $0.06 a share, worse than the $0.04-loss analysts expects but those results included its Juicy Couture line, which underperformed the rest of the company. Revenue of $224 million, excluding Juicy Couture, handily beat estimates at $201.9 million.

Now what: CEO Craig Leavitt called the first-quarter performance "very strong," and the growth in the Kate Spade brand seems to indicate that the recent divestitures were the right move for the company. Kate Spade retail square footage grew 42% in the quarter from a year ago, and management said it planned to open 80 stores this year, ensuring continued strong sales growth. With comparable sales soaring and an ambitious store expansion plan, I'd expect robust profit growth to soon follow.

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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8/27/2015 4:02 PM
KATE $18.42 Up +0.68 +3.83%
Kate Spade & Compa… CAPS Rating: **