Designer handbag company Kate Spade & Co (NYSE:KATE) has fallen almost 25% in trading today after reporting $14 million, or $0.11 per share, in GAAP losses for the second quarter, despite increasing sales 48.7% year on year to $266 million for the quarter.
“Net sales for both our North American and International segments grew 55% and 54%, respectively, illustrating that our differentiated product resonates with consumers around the world,” said CEO Craig Leavitt, focusing on the revenue beat. “We have a clear vision of our customer and continue to design strong collections as we shape our fast-growing, global lifestyle brand.”
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Kate Spade was up 9% in pre-market trading
The initial reaction to Kate Spade & Co (NYSE:KATE) second quarter earnings was positive, MarketWatch reports that its shares were up 9% in premarket trading, as it looked like the handbag maker would continue to steal market share from its rival Coach Inc (NYSE:COH) and start turning a profit before long.
But that optimism changed as focused shifted from the impressive top line growth to the margins that fell from 61.8% to 58.6% year on year, preventing Kate Spade & Co (NYSE:KATE) from breaking even as the market had expected it would. SG&A increased 27.8% over 2Q13 to $146 million, but that was still 54.9% of net sales for the quarter compared to 63.9% in 2Q13.
Luxury brands may not be immune to promotional sales environment
Michael Kors Holdings Ltd (NYSE:KORS) also saw its stock price decline after releasing second quarter earnings that beat consensus sales expectations but had softer margins than expected because of discounted sales on low end items. While luxury brands are often considered to have a moat that retail stores don’t share because of their strong brands, this shows that the promotional environment that has been plaguing J C Penney Company Inc (NYSE:JCP)’s and other retailers is also having some impact on companies like Kate Spade & Co (NYSE:KATE). Michael Kors stock price has partially recovered in the week since releasing second quarter earnings.
Going a bit further afield, this could also be seen as a sign that investors are becoming pickier about what stocks they want to own as the bull market matures. Perennial growth stock Amazon.com, Inc. (NASDAQ:AMZN) took a beating when it announced a combination of high losses and strong growth that would have been acceptable to many people in the past.