(Reuters) - Hand bag and accessories maker and retailer Kate Spade & Co, under pressure from an activist investor, is exploring a sale and is working with a bank to sound out possible buyers, the Wall Street Journal reported, citing people familiar with the matter.
The potential buyers contacted include retailers, the newspaper reported, adding that the process was at an early stage.
Shares of Kate Spade, which had a market value of $1.86 billion as of Tuesday's close, were up 16 percent at $16.83 after being halted twice.
The company did not immediately respond to a request for comment.
Hedge fund Caerus Investors said last month that the company would make a great acquisition candidate as its stock was trading at a discount to its peers.
Sales of handbags have weakened over the past year in the United States, as people shop lesser at department stores in favor of online shopping. Lower spending by tourists, due to a strong dollar, has also hurt sales.
In response, handbag makers such as Coach Inc and Michael Kors Holdings Ltd are tightening supplies to department stores and also exploring deals.
Coach made multiple takeover offers for British luxury fashion brand Burberry, but was rejected, the Financial Times reported this month.
As of Sept. 13, 2015, Caerus had a 0.03 percent stake in Kate Spade, according to a regulatory filing. The small New York hedge fund has not provided details of its shareholding since then.
Activist investor Barry Rosenstein's Jana Partners LLC also revealed a stake in the company last month, saying it held a 0.85 percent of Kate Spade's shares.
Kate Spade, known for its quirky and colorful satchels and totes, reported lower-than-expected quarterly same-store sales last month and said pricing competition would likely dampen earnings during the holiday shopping quarter.
Up to Tuesday's close, Kate Spade's stock had fallen 18.4 percent this year.
Reporting by Aravind K and Sruthi Ramakrishnan in Bengaluru; Editing by Maju Samuel and Anil D'Silva