Analysts at the firm said that with the tepid mall traffic so far, earnings may see near-term pressure as the apparel and accessories retail company faces slowing comp momentum.
Mizuho added that Kate Spade management's plans to gradually pull back on promotions could be difficult, given mixed consumer spending along with rising competition and the company's goal to grow market share.
The firm believes that the retailer will continue its solid wholesale growth through additional styles in categories such as handbags, leather goods, and ready-to-wear.
Shares of Kate Spade are lower by 1.06% to $27.06 in early market trading Thursday.
Separately, TheStreet Ratings team rates KATE SPADE & CO as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate KATE SPADE & CO (KATE) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, premium valuation and relatively poor performance when compared with the S&P 500 during the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, KATE SPADE & CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The revenue growth greatly exceeded the industry average of 15.0%. Since the same quarter one year prior, revenues rose by 48.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for KATE SPADE & CO is rather high; currently it is at 58.61%. Regardless of KATE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KATE's net profit margin of -1.65% significantly underperformed when compared to the industry average.
- The debt-to-equity ratio is very high at 5.27 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, KATE maintains a poor quick ratio of 0.90, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: KATE Ratings Report