(Adds analyst comments; updates shares to close)
By Gayathree Ganesan
Feb 16 Handbag and accessories maker Kate Spade
& Co said on Thursday it would explore strategic
alternatives, bowing to pressure from U.S. hedge fund Caerus
Kate Spade's shares closed up 14.7 percent at $22.56,
valuing the company at $2.89 billion.
The company said it would review strategic alternatives with
Perella Weinberg Partners as its financial adviser.
The moves come amid a slump in sales for handbag makers,
hurt by declines in mall traffic and a drop in foreign tourist
spending due to a strong dollar.
Kate Spade said on Thursday sales at stores open for at
least 14 months fell 1.5 percent in the fourth quarter, as fewer
customers visited its kate spade new york stores.
Caerus, a small New York-based hedge fund, not known for the
kind of public activism it is targeting at Kate Spade, sent a
letter to the board in November, saying it was "increasingly
frustrated" by the inability of Kate Spade's management to
achieve profit margins comparable with industry peers.
The company's 2016 margins before interest and income taxes
was 13.2 percent, compared with 17.5 percent at Coach Inc
and 21.3 percent at Michael Kors Holdings Ltd.
Since Caerus's letter, several media outlets have reported
that Coach and Michael Kors were interested in bidding for the
A deal could be imminent given Kate Spade's early
announcement of its fourth-quarter results, plus the absence of
a full-year forecast, Cowen and Company analyst Oliver Chen
wrote in a note.
The company's slimmer distribution profile, non-handbag
products across the United States, small leather goods and
novelty items will be attractive factors to a strategic or
financial buyer, Chen said.
Chen said other luxury goods companies such as LVMH, Kering,
and Richemont are also likely to consider buying Kate Spade.
Excluding items, Kate Spade earned 41 cents per share,
beating analysts' average estimate of $34 cents, according to
Thomson Reuters I/B/E/S.
Net revenue rose 9.8 percent to $470.84 million. Analysts on
average had expected revenue of $471.95 million.
(Reporting by Gayathree Ganesan in Bengaluru; Editing by
Martina D'Couto and Sriraj Kalluvila)