This Day On The Street
Continue to site
ADVERTISEMENT
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

Is the Kate Spade Stock Bubble About to Explode?

NEW YORK (TheStreet) -- Wall Street has fallen in love with preppy handbag and accessory maker Kate Spade (KATE - Get Report).

However, based on the financial performance of the company, the great Kate Spade stock bubble may be about to explode.

The company is estimated to announce its second-quarter earnings on Aug. 8. In just one telling sign of excessive optimism, Kate Spade has missed Wall Street's earnings expectations for four consecutive quarters. For the first quarter, the company actually delivered its first sales beat vs. consensus forecasts in three quarters, yet still fell shy of Wall Street's profit estimates.

Yet hopeful investors have pushed shares of Kate Spade up 17.27% year to date, outpacing the 3.7% rise in the Bloomberg Branded Apparel Index. Fueled by bullish commentary from chief executive officer Craig Leavitt, those investors are expecting the company to become the next Polo Ralph Lauren (RL) -- a global lifestyle brand powerhouse.

Read More: Aeropostale Struggling to Show it Could be Cool Like Forever 21, H&M

Wall Street has specifically warmed to Kate Spade because it sees a future for the company in these areas:

  1. An ability to maintain a mostly non-promotional, full-price market for its products that range from bright-colored housewares to quirky ballet flats.
  2. The continued rollout of product extensions. In November, for example, Kate Spade will unveil its first swimwear collection consisting of 70 pieces.
  3. A dramatic increase in global square footage via the opening of new specialty stores, concessions and likely flagship stores in international tourist destinations. Kate Spade currently operates 118 specialty stores, 51 outlet stores, and 43 concessions.
  4. Further penetration of lucrative online sales. Digital sales already comprise approximately 20% of Kate Spade's business.

All told, Leavitt has gone on the record stating Kate Spade is destined to reach the $2 billion sales mark by year end 2016, which would represent a 169% surge from 2013.

While Wall Street chooses to remain infatuated with Kate Spade's future growth potential, there is one not-so-slight problem being overlooked. Kate Spade has done close to nothing in terms of profitability in over six quarters to justify its exorbitant market valuation.

1 of 2

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
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
COH $42.65 0.00%
KATE $33.97 0.00%
JWN $78.16 0.00%
KORS $63.48 0.00%
M $66.99 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs