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TheStreet Open House

Call Me Kate Spade, Says Fifth & Pacific (FNP)

NEW YORK (TheStreet) -- Investors in Fifth & Pacific (FNP) are feeling skittish after the company reported its holiday sales performance and as it prepares to undergo a name change and executive shake-up.

By late morning, shares had tumbled 2.7% to $31.01.

On Thursday, the New York-based business announced it is in the process of changing its name to Kate Spade & Company after numerous asset sales left it with one major brand. In 2013, the retailer unloaded the Juicy Couture brand and sold Liz Claiborne a year earlier. The sale of Lucky Brand is expected to close in early in the first quarter of 2014.

Additionally, Fifth & Pacific announced CEO William L. McComb would be stepping down from his role to be succeeded by Craig Leavitt, current CEO of the company's Kate Spade branch.

The management transition and corporate name change will be effective following the scheduled release of fourth-quarter earnings on Feb. 25. From this time, the company will trade under KATE on the New York Stock Exchange.

"While the name of the company will change, the brand and operational leadership that got us to this place not only continues, but are enhanced as we merge the Kate Spade and FNP teams," said Leavitt in a statement.

Fifth & Pacific will incur a non-cash severance charge of $16 million and cash severance charges of $7 million as part of the management reshuffle.

Based on preliminary figures, the company said its direct sales to consumers for its Kate Spade brand rose 30% over the fourth quarter. Adjusted EBITDA for full-year 2013 is expected in the range of $125 million to $130 million, in line with the $128.68 million analysts surveyed by Thomson Reuters anticipate.

For fiscal 2014, the luxury retailer said it expects revenue 10 to 13% above 2013 sales. Adjusted EBITDA between $115 million and $125 million is far below consensus of $189.50 million.

TheStreet Ratings team rates FIFTH & PACIFIC COS INC as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate FIFTH & PACIFIC COS INC (FNP) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has decreased to -$37.86 million or 43.62% when compared to the same quarter last year. Despite a decrease in cash flow FIFTH & PACIFIC COS INC is still fairing well by exceeding its industry average cash flow growth rate of -74.17%.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry average. The net income increased by 10.3% when compared to the same quarter one year prior, going from -$18.80 million to -$16.87 million.
  • FIFTH & PACIFIC COS INC has improved earnings per share by 29.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, FIFTH & PACIFIC COS INC swung to a loss, reporting -$0.64 versus $0.99 in the prior year. This year, the market expects an improvement in earnings ($0.03 versus -$0.64).
  • The gross profit margin for FIFTH & PACIFIC COS INC is rather high; currently it is at 56.47%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -3.91% is in-line with the industry average.
  • This stock has increased by 156.10% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in FNP do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

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