This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Sozzi: Attention ALL Ladies, Kate Spade Is Bursting Onto the Scene

NEW YORK (TheStreet) -- "Ralph Lauren is our business analog", proclaimed Kate Spade (KATE - Get Report) CEO and former Ralph Lauren (RL) executive Craig Leavitt in a recent interview. In non-corporate jargon, the comment was Leavitt's way of saying Kate Spade could become the next Polo Ralph Lauren, a global powerhouse brand that sells merchandise that is seemingly in demand year round. I chuckled at this bravado, not because Kate and Jack Spade are no longer working at the company, whereas Ralph Lauren is still actively involved in the company he founded and could be spotted on quarterly earnings press releases, but this is a brand that isn't exactly new to the retail scene.

How could an already well-known brand from outlet centers be transformed into one that steals the show from the on-fire Michael Kors (KORS - Get Report) at Macy's (M), while at the same time stomping on the face of Coach (COH - Get Report) as it attempts to pick itself up off the ground after years of stale assortments? Well, it's actually happening, as I detected in a fact finding mission at various upper tier department stores.

For the record, Kate Spade is now its own publicly traded entity, has a stock price that is up 98% in the last year, and a forward price-to-earnings multiple (58x) that would make Ben Bernanke and Janet Yellen cringe. Here are a few of the things I like and don't like about the new Kate Spade.


Must Read: Is Apple Pressuring Walmart to Clean Up Its Act?

  • It's taking floor space in department stores with more eye-catching shops (aka concessions in SEC filings) than Michael Kors and Coach.
  • It's taking prime counter space in the watch section at department stores.
  • The brand has begun to show consumers a full lifestyle collection in its new retail stores (housewares, stuff other than handbags and wallets).


  • Although at $1,265 in sales per share foot there is opportunity to reach Michael Kors ($1,431) and Coach ($1,831), this metric has not grown much in the past six months.
  • On a 30% same-store sales gain for the holiday quarter, adjusted operating margins were flat as Kate Spade invested in its future growth. Michael Kors has been able to expand its operating margins even as it invests globally.

All-Time Must Ask Questions for Investors

With any retail brand (could broaden out to consumer brand) that is being valued by the stock market as the next big thing, an investor has to cut through the fluff consisting of new store growth projections and buzzy exec speak and peer into the soul of the company. Remember, there are, by and large, no Warren Buffett-like wide moats around a retail brand, and what appears to be a wide moat one day could be nothing more than a fad that leads to earnings disappointments.

Here are the four questions to always ask yourself on sexy retail brands such as Kate Spade:

Is the brand really new?

  • Michael Kors burst onto the scene as a clear counter to Coach's riskless merchandise assortments. Hence, it was something new to the consumer, a trendier brand at more affordable price points.

Will the target consumer return to the physical or online stores every season to buy the latest?

  • The stock market is likely valuing it as if the consumer views the brand as their top destination throughout the year.

Does the brand's merchandise become a staple to a consumer's life?

  • Michael Kors, for example, has designed its handbags to be very versatile. One could rock its handbags to a business meeting or to an interview.

Is the brand strong enough to have a person buy it at an outlet store but also be willing to pay full price at a store in the mall?

  • Coach has been tripped up by more consumers visiting its factory stores.

Watch More Videos From Brian Sozzi

Read on for glimpses into this retail battleground:

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
COH $40.27 0.00%
KATE $25.73 0.00%
KORS $51.66 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs