Kate Spade & Company Reports Fourth Quarter and Full Year 2015 Results and Provides 2016 Guidance

-- Direct-to-consumer comparable sales growth of 14% for the fourth quarter and 13% for the full year 2015

-- Net sales increase of 14% for the quarter and 21% for the full year, adjusting for previously announced wind-down operations and excluding certain non-comparable items in 2014; on a reported basis, net sales increase of 8% for the quarter and 9% for the full year

-- Fourth quarter Adjusted EBITDA of $97 million, or 23% of sales, and full year Adjusted EBITDA of $203 million, or 17% of sales, each excluding wind-down operations, ahead of 2015 guidance

-- Adjusted diluted earnings per share of $0.32 for the quarter and $0.50 for the full year, excluding wind-down operations

Mar 01, 2016, 07:00 ET from Kate Spade & Company

NEW YORK, March 1, 2016 /PRNewswire/ -- Kate Spade & Company (NYSE: KATE) today announced results for the fourth quarter and full year ended January 2, 2016.

Net sales for the fourth quarter of 2015, excluding sales for wind-down operations, were $428 million, an increase of $52 million, or 13.9% compared to the fourth quarter of 2014, adjusting 2014 net sales for wind-down operations and excluding the impacts of changes in foreign currency exchange rates and 2015 strategic initiatives.  Refer to the table entitled "Reconciliation of Non-GAAP Net Sales Information" for a reconciliation from GAAP results.

Reported net sales for the fourth quarter of 2015 were $429 million, an increase of $30 million, or 7.6%, from the comparable 2014 period.    

Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company, said: "In 2015, we became a stronger, refocused Kate Spade & Company. We made significant progress along our two axes of growth - product category and geographic expansion - introducing 14 new product categories and entering 8 new countries. Our results reflect our success, with sales growth of 21% on a pro forma basis over last year. In addition, our quality of sale efforts are successfully fueling brand aspiration and our channel-agnostic approach was a key driver of growth both during the fourth quarter and throughout 2015. We will continue to prioritize these important points of differentiation in 2016."

Mr. Leavitt concluded: "Looking ahead, we will harness the powerful momentum we created in 2015 to drive Kate Spade & Company's growth across our four category pillars - women's, men's, children's and home. As we enter 2016, we are well-positioned for sustainable long-term growth." 

George Carrara, President and Chief Operating Officer of Kate Spade & Company, added:  "We are very pleased with our full year performance for 2015, particularly our industry leading comparable sales growth of 13% and robust Adjusted EBITDA margin expansion of 380 basis points, positioning us well to achieve our Adjusted EBITDA margin target of 18-20% in 2016. We have worked diligently over the past two years to achieve margin expansion and are in a solid position as a global, multi-channel lifestyle brand poised to generate strong double-digit growth on both our top and bottom line in the year ahead."

For the fourth quarter of 2015 on a GAAP basis, income from continuing operations was $62 million, or $0.48 per diluted share, compared to $126 million, or $0.99 per diluted share (which included a benefit of $88 million resulting from the reversal of income tax reserves, due to the expiration of the related statutes of limitations), for the fourth quarter of 2014. Adjusted diluted earnings per share from continuing operations in the fourth quarter of 2015 were $0.32, compared to $0.24 in the fourth quarter of 2014.

For the full year 2015, the Company reported income from continuing operations of $22 million, or $0.17 per diluted share, compared to income from continuing operations for the full year 2014 of $77 million, or $0.60 per diluted share (which included a net benefit of $87 million resulting from the reversal of income tax reserves, due to the expiration of the related statutes of limitations).  Reported net sales for the full year 2015 were $1.243 billion, an increase of $104 million, or 9.1%, from 2014.  Adjusted diluted earnings per share from continuing operations in 2015 were $0.48 compared to $0.25 in 2014.  Net sales for 2015, excluding sales for wind-down operations, were $1.215 billion, an increase of $208 million, or 20.6% compared to 2014, adjusting 2014 net sales for wind-down operations and excluding the impacts of the 53rd week, changes in foreign currency exchange rates and 2015 strategic initiatives.  Adjusted EBITDA, excluding the previously announced wind-down operations in 2015 was $203 million for 2015.

The Company will host a conference call at 8:30 a.m. Eastern time today to discuss its results for the fourth quarter 2015. The dial-in number is 1-888-694-4676 with pass code 38819191. The webcast and slides accompanying the prepared remarks can be accessed via the Investor Relations section of the Kate Spade & Company website at www.katespadeandcompany.com. An archive of the webcast will be available on the website. Additional information on the results of the Company's operations is available in the Company's Form 10-K for the full year 2015, to be filed with the Securities and Exchange Commission. 

The Company determined that the Kate Spade Saturday, Jack Spade, Kate Spade Brazil and Adelington Design Group initiatives did not represent a strategic shift in the Company's operations and therefore did not present these activities as discontinued operations.

Adjustments to net sales for wind-down operations include net sales for Kate Spade Saturday, Jack Spade brick and mortar locations, Kate Spade Brazil and brand exits in the Adelington Design Group segment in both periods. In addition to those items, the impacts of the 53rd week, changes in foreign currency exchange rates and strategic initiatives, including quality of sale and the conversion of the Hong Kong, Macau and Taiwan territories to a joint venture are adjusted in 2014.  Refer to the table entitled "Reconciliation of Non-GAAP Net Sales Information" for a reconciliation from GAAP results.

The adjusted results for the fourth quarter 2015 and 2014 exclude the impact of expenses incurred in connection with the Company's streamlining initiatives (such as severance costs, contract termination costs, asset write-downs and other costs) and brand-exiting activities, acquisition related costs, impairment of intangible assets in 2014, loss on settlement of note receivable and loss on extinguishment of debt. The adjusted results for 2015 also exclude a $26 million charge related to the termination of certain contracts with the Company's former joint venture partner in Kate Spade China Co., Ltd. The Company believes that the adjusted results for such periods represent a more meaningful presentation of its historical operations and financial performance since these results provide period to period comparisons that are consistent and more easily understood. In addition to those items, the Company presents its 2015 adjusted results further adjusted to exclude the adjusted results of wind-down operations (Kate Spade Saturday, Jack Spade brick and mortar, Kate Spade Brazil and brand exits in the Adelington Design Group segment). The Company believes that the adjusted results excluding wind-down operations provide a meaningful presentation of its 2015 results on a go-forward basis. The attached tables, captioned "Reconciliation of Non-GAAP Financial Information," provide a full reconciliation of actual results to the adjusted results. The Company presents Adjusted EBITDA, which it defines as income (loss) from continuing operations, adjusted to exclude income tax provision (benefit), interest expense, net, depreciation and amortization, net, expenses incurred in connection with the Company's streamlining initiatives, brand-exiting activities, acquisition related costs, non-cash impairment charges, losses on asset disposals, loss on settlement of note receivable, loss on extinguishment of debt, non-cash share-based compensation expense and unrealized and certain realized foreign currency transaction adjustments, net. The Company presents the above-described Adjusted EBITDA measures because it considers them important supplemental measures of its performance and believes they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry.  The Company also presents Adjusted EBITDA Excluding Wind-Down Operations, which the Company defines as Adjusted EBITDA further adjusted to remove the Adjusted EBITDA of Kate Spade Saturday, Jack Spade brick and mortar, Kate Spade Brazil and the brand exits in the Adelington Design Group segment.  The Company believes this Adjusted EBITDA measure provides a meaningful presentation of its 2015 results on a go-forward basis.

FOURTH QUARTER RESULTS

Overall Results

Net sales for the fourth quarter of 2015, excluding sales for wind-down operations, were $428 million, an increase of $52 million, or 13.9% compared to the fourth quarter of 2014, adjusting 2014 net sales for wind-down operations and excluding the impacts of changes in foreign currency exchange rates and the 2015 strategic initiatives.  Reported net sales for the fourth quarter of 2015 were $429 million, an increase of $30 million, or 7.6%, from the comparable 2014 period. Fourth quarter 2015 direct-to-consumer comparable sales growth was 14%, or 9% excluding eCommerce.  Comparable sales per square foot for kate spade new york stores were $1,588 for the latest twelve months, compared to $1,504 for the twelve month period ended October 3, 2015.                     

Gross profit as a percentage of net sales was 60.3%, excluding the impact of wind-down operations, and 60.2% on a reported basis, for the fourth quarter of 2015.  Gross profit as a percentage of net sales was 59.7% for the fourth quarter 2014, excluding an $8 million inventory write down resulting from discontinuing Kate Spade Saturday as a standalone business and the change in the Jack Spade business model.  Including these charges, gross margin as a percentage of sales was 57.8% in the fourth quarter of 2014. 

Selling, general & administrative expenses were $182 million, or 42.4% of net sales, excluding the results of wind-down operations and expenses associated with streamlining activities.  On a reported basis, selling, general and administrative expenses increased to $184 million, or 43.0% of net sales in the fourth quarter of 2015, compared to $182 million, or 45.6% of net sales in the fourth quarter of 2014.

Interest expense, net increased to $5 million in the fourth quarter of 2015, compared to $2 million in the fourth quarter of 2014, primarily reflecting the absence of interest income related to the Lucky Brand Note which was settled in the first quarter of 2015.

Net Debt decreased to $104 million at the end of the fourth quarter of 2015 from $227 million at the end of the fourth quarter of 2014.

Segment Highlights

Net sales and Segment Adjusted EBITDA for our reportable segments are provided below.

Segment Adjusted EBITDA excludes: (i) depreciation and amortization; (ii) charges due to streamlining initiatives, brand-exiting activities and acquisition related costs; and (iii) losses on asset disposals and impairments.  The costs of all corporate departments that serve the respective segment are fully allocated. The Company does not allocate amounts reported below Operating income (loss) to its reportable segments, other than adjusted equity income (loss) in its equity method investees. The Company's definition of Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Kate Spade North America

Kate Spade North America net sales for the fourth quarter of 2015, excluding sales for wind-down operations, were $371 million, an increase of $48 million, or 14.9% compared to the fourth quarter of 2014, adjusting for wind-down operations and excluding the impacts of changes in foreign currency exchange rates and quality of sale initiatives in 2014.  Reported net sales for the fourth quarter of 2015 were $371 million, an increase of $45 million, or 13.6%, from the comparable 2014 period.

Store counts and key operating metrics for kate spade new york stores are as follows:

  • We ended the quarter with 104 specialty retail stores and 64 outlet stores, reflecting the net addition over the last 12 months of 11 specialty retail stores and 7 outlet stores; and
  • Average retail square footage in the fourth quarter of 2015 was approximately 377 thousand square feet, a 10.9% increase compared to 2014.

Kate Spade North America Segment Adjusted EBITDA both Excluding and Including Wind-Down Operations was $91 million (24.5% of net sales) for the fourth quarter of 2015 compared to $73 million (22.5% of net sales) for the fourth quarter of 2014. 

Kate Spade International

Kate Spade International net sales for the fourth quarter of 2015, excluding sales for wind-down operations, were $51 million, an increase of $8 million, or 18.7% compared to the fourth quarter of 2014, adjusting for wind-down operations and excluding the impact of the conversion of the Hong Kong, Macau and Taiwan territories to a joint venture and changes in foreign currency exchange rates in 2014. Reported net sales for the fourth quarter of 2015 were $52 million, a decrease of $8 million, or 13.3%, from the comparable 2014 period.  

Store counts and key operating metrics are as follows:

  • We ended the quarter with 22 kate spade new york specialty retail stores, 52 concessions and 13 outlet stores, reflecting the net reduction over the last 12 months of 10 specialty retail stores and one outlet store, including the conversion of 6 specialty retail stores, 3 concessions and 1 outlet store totaling 11 thousand square feet in Hong Kong, Macau and Taiwan to a joint venture; and
  • Average retail square footage for Japan and Europe in the fourth quarter of 2015 was approximately 77 thousand square feet, a 12.3% increase compared to 2014.

Kate Spade International Segment Adjusted EBITDA Excluding Wind-Down Operations was $5 million (9.1% of net sales) for the fourth quarter of 2015.  Kate Spade International Segment Adjusted EBITDA, including results of wind-down operations, was $4 million (8.6% of net sales) for the fourth quarter of 2015 compared to $1 million (1.2% of net sales) for the fourth quarter of 2014.

Adelington Design Group

Adelington Design Group net sales for the fourth quarter of 2015 were $6 million, a decrease of $4 million or 40.3% adjusting for wind-down operations in 2014.  Reported net sales were $6 million, a 52.8% decrease compared to 2014.

Adelington Design Group Segment Adjusted EBITDA Excluding Wind-Down Operations was $1 million (26.6% of net sales) in the fourth quarter of 2015.  Segment Adjusted EBITDA was $2 million (32.3% of net sales) in the fourth quarter of 2015 and $3 million (26.1% of net sales) in the fourth quarter of 2014.   

2016 GUIDANCE

Net Sales

$1.385B – $1.410B

Adjusted EBITDA *

$257M – $282M

Diluted Earnings Per Share **

$0.70 – $0.80

DTC Comparable Sales Growth

low to mid-teens growth

Capital Expenditures

~$65M – $70M

Planned Net New Store Openings (Company Owned & Partners)

~40 – 45

2015 Year End NOL Balance

$739M


*Adjusted EBITDA, as presented in the Company's 2016 guidance, excludes depreciation and amortization, losses on asset disposals and impairments, non-cash share-based compensation expense, income tax provision (benefit), interest expense, net  and unrealized and certain and realized foreign currency gains (losses).

** Diluted earnings per share estimated using a normalized tax rate of 40%.

The Company expects to report first quarter 2016 financial results on Wednesday, May 4, 2016. 

ABOUT KATE SPADE & COMPANY

Kate Spade & Company (NYSE: KATE) operates principally under two global, multichannel lifestyle brands: kate spade new york and Jack Spade.  The Company's four category pillars – women's, men's, children's and home – span demographics, genders and geographies. Known for crisp color, graphic prints and playful sophistication, kate spade new york aims to inspire a more interesting life.  The kate spade new york collection includes the Madison Avenue, Broome Street and on purpose labels.  Jack Spade offers a timeless and versatile assortment of bags, sportswear and tailored clothing founded on the aesthetic of simple, purposeful design.  The Company also owns Adelington Design Group, a private brand jewelry design and development group.  Visit www.katespadeandcompany.com for more information.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in, or incorporated by reference into, this press release, future filings by us with the Securities and Exchange Commission ("SEC"), and oral statements made by, or with the approval of, our authorized personnel, that relate to our future performance or future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such statements are indicated by words or phrases such as "intend," "anticipate," "plan," "estimate," "target," "aim," "forecast," "project," "expect," "believe," "we are optimistic that we can," "current visibility indicates that we forecast," "contemplation" or "currently envisions" and similar phrases.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control, which could cause actual results to differ materially from those suggested by the forward-looking statements, including, without limitation: our ability to successfully implement our long-term strategic plans; general economic conditions in the United States, Asia, Europe, Canada and other parts of the world; our exposure to currency fluctuations; levels of consumer confidence, consumer spending and purchases of discretionary items, including fashion apparel and related products, such as ours; changes in the cost of raw materials, occupancy, labor, advertising and transportation which could impact prices of our products; our ability to expand into markets outside of the US, including our ability to promote brand awareness in our international markets, find suitable partners in certain of those markets and hire and retain key employees for those markets; our ability to maintain targeted profit margins and levels of promotional activity; our ability to optimize our product offerings, in order to anticipate and timely respond to constantly changing consumer demands, tastes and fashion trends, across multiple brands, product lines, shopping channels and geographies; the impact of the highly competitive nature of the markets within which we operate, both within the US and abroad; issues related to our current level of debt, including an inability to pursue certain business strategies because of the restrictive covenants in the agreements governing our debt and our potential inability to obtain the capital resources needed to operate and grow our business; restrictions in the credit and capital markets, which would impair our ability to access additional sources of liquidity, if needed; our ability to expand our retail footprint with profitable store locations; our ability to implement operational improvements and realize economies of scale in finished product and raw material costs in connection with growth in our business; our ability to expand into new product categories; our ability to successfully implement our marketing initiatives; our dependence on a limited number of large US department store customers, and the risk of consolidations, restructurings, bankruptcies and other ownership changes in the retail industry and financial difficulties at our larger department store customers; risks associated with material disruptions in our information technology systems, both owned and licensed, and with our third party eCommerce platforms and operations; risks associated with data security, including privacy breaches; risks associated with credit card fraud and identity theft; our ability to attract and retain talented, highly qualified executives, and maintain satisfactory relationships with our employees; our ability to adequately establish, defend and protect our trademarks and other proprietary rights; our reliance on independent foreign manufacturers, including the risk of their failure to comply with legal requirements or our policies regarding applicable safety standards or labor practices; risks associated with having a buying/sourcing agreement which results in a single third party foreign buying/sourcing agent for a significant portion of our apparel products and transitioning buying/sourcing  activities for our non-apparel products to an in-house model; risks associated with our arrangement to operate our leased Ohio distribution facility with a third party operations and labor management company that provides distribution operations services, including risks related to increased operating expenses and operating under a third party arrangement; risks associated with the various businesses we have disposed; risks associated with severe weather, natural disasters, public health crises, war, terrorism or other catastrophic events; a variety of legal, regulatory, political, labor and economic risks, including risks related to the importation and exportation of product, tariffs and other trade barriers; our ability to adapt to and compete effectively in the current quota environment in which general quota has expired on apparel products, but political activity seeking to re-impose quota has been initiated or threatened; risks associated with third party service providers, both domestic and overseas, including service providers in the area of e-commerce; limitations on our ability to utilize all or a portion of our US deferred tax assets if we experience an "ownership change"; and the outcome of current and future litigation and other proceedings in which we are involved.

The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All subsequent written and oral forward-looking statements concerning the matters addressed in this press release and attributable to us or any person acting on our behalf are qualified by these cautionary statements. Forward-looking statements are based on current expectations only and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions, including those described in this press release, and in the Company's Annual Report on Form 10-K for the year ended January 2, 2016, to be filed with the SEC, including in the sections entitled "Item 1A-Risk Factors" and "Statement Regarding Forward-Looking Statements." We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. In addition, some factors are beyond our control. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 



KATE SPADE & COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(All amounts in thousands, except per common share data)



















Three Months Ended





Three Months Ended







January 2, 2016


% of



January 3, 2015


% of





 (13 Weeks) 


 Sales 



 (13 Weeks) 


 Sales 
















Net Sales



$

428,958


100.0  %



$

398,574


100.0  %


Cost of goods sold



170,870


39.8  %




168,350


42.2  %


Gross Profit




258,088


60.2  %




230,224


57.8  %


Selling, general & administrative expenses


184,427


43.0  %




181,767


45.6  %


Impairment of intangible asset


-


-




1,533


0.4  %


Operating Income



73,661


17.2  %




46,924


11.8  %


Other expense, net



(6,359)


(1.5) %




(2,316)


(0.6) %


Interest expense, net



(5,170)


(1.2) %




(1,993)


(0.5) %


Income Before Provision (Benefit) for Income Taxes


62,132


14.5  %




42,615


10.7  %


Provision (benefit) for income taxes


624


0.1  %




(83,879)


(21.0) %


Income from Continuing Operations


61,508


14.3  %




126,494


31.7  %


Discontinued operations, net of income taxes


(44)






30




Net Income 



$

61,464





$

126,524


















Earnings per Share:













Basic 















Income from Continuing Operations 

$

0.48





$

0.99





Net Income 


$

0.48





$

0.99


















Diluted















Income from Continuing Operations 

$

0.48





$

0.99





Net Income 


$

0.48





$

0.99



















Weighted Average Shares, Basic 


127,703






127,160




Weighted Average Shares, Diluted 


128,267






127,741



 


KATE SPADE & COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(All amounts in thousands, except per common share data)



















Twelve Months Ended





Twelve Months Ended







January 2, 2016


% of



January 3, 2015


% of





 (52 Weeks) 


 Sales 



 (53 Weeks) 


 Sales 
















Net Sales



$

1,242,720


100.0  %



$

1,138,603


100.0  %


Cost of goods sold



488,613


39.3  %




458,332


40.3  %


Gross Profit




754,107


60.7  %




680,271


59.7  %


Selling, general & administrative expenses


687,709


55.3  %




645,266


56.7  %


Impairment of intangible asset


-


-




1,533


0.1  %


Operating Income



66,398


5.3  %




33,472


2.9  %


Other expense, net



(11,137)


(0.9) %




(4,033)


(0.4) %


Loss on settlement of note receivable


(9,873)


(0.8) %




-


-


Loss on extinguishment of debt


-


-




(16,914)


(1.5) %


Interest expense, net



(19,152)


(1.5) %




(20,178)


(1.8) %


Income (Loss) Before Provision (Benefit) for Income Taxes


26,236


2.1  %




(7,653)


(0.7) %


Provision (benefit) for income taxes


4,528


0.4  %




(84,379)


(7.4) %


Income from Continuing Operations


21,708


1.7  %




76,726


6.7  %


Discontinued operations, net of income taxes


(4,621)






82,434




Net Income 



$

17,087





$

159,160


















Earnings per Share:













Basic















Income from Continuing Operations 

$

0.17





$

0.61





Net Income 


$

0.13





$

1.26


















Diluted















Income from Continuing Operations 

$

0.17





$

0.60





Net Income 


$

0.13





$

1.25



















Weighted Average Shares, Basic 


127,634






126,264




Weighted Average Shares, Diluted 


128,222






127,019



 


KATE SPADE & COMPANY

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands)















January 2, 2016


January 3, 2015



Assets










Current Assets:










   Cash and cash equivalents

$

297,851


$

184,044




   Accounts receivable - trade, net


96,850



90,091




   Inventories, net


191,879



158,241




   Other current assets


35,134



42,124




   Total current assets


621,714



474,500














Property and Equipment, Net


173,963



174,072




Goodwill



48,730



64,798




Intangibles, Net



86,288



90,327




Note Receivable


-



88,976




Other Assets



49,666



33,665



Total Assets


$

980,361


$

926,338













Liabilities and Stockholders' Equity









Current Liabilities:









    Short-term borrowings

$

4,514


$

10,459




    Other current liabilities


262,662



242,336




    Total current liabilities


267,176



252,795














Long-Term Debt


397,043



400,284




Other Non-Current Liabilities


70,921



73,648




Stockholders' Equity 


245,221



199,611



Total Liabilities and Stockholders' Equity 

$

980,361


$

926,338






















 


KATE SPADE & COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)



















Twelve Months Ended








January 2, 2016


January 3, 2015








(52 Weeks)


(53 Weeks)















Cash Flows from Operating Activities:









Net income 


$

17,087


$

159,160




Adjustments to arrive at income from continuing operations


4,621



(82,434)




Income from continuing operations


21,708



76,726
















Adjustments to reconcile income from continuing operations to net cash provided by 









       operating activities:










Depreciation and amortization


49,937



54,438





Impairment of intangible asset


-



1,533





Loss on asset disposals and impairments, including streamlining initiatives, net


13,600



13,063





Deferred income taxes


474



(350)





Share-based compensation


25,577



37,270





Loss on settlement of note receivable


9,873



-





Loss on extinguishment of debt


-



16,914





Foreign currency transaction losses, net


4,845



6,535





Equity losses of equity investees


6,694



2,583





Other, net


(281)



(13)




Changes in assets and liabilities:










Increase in accounts receivable - trade, net


(7,540)



(27,643)





Increase in inventories, net


(42,540)



(21,903)





Decrease (increase) in other current and non-current assets


5,597



(12,840)





Increase (decrease) in accounts payable


23,911



(9,681)





Increase (decrease) in accrued expenses and other non-current liabilities


7,773



(9,006)





Increase (decrease) in income taxes payable


912



(83,062)





Net cash used in operating activities of discontinued operations


(14,964)



(30,200)





     Net cash provided by operating activities


105,576



14,364















Cash Flows from Investing Activities:









Proceeds from sales of property and equipment


816



-




Purchases of property and equipment


(55,084)



(93,609)




Payments for purchases of businesses


-



(32,268)




Proceeds from sales of joint venture interests, net


17,621



-




Payment for joint venture interest


(10,000)



-




Payments for in-store merchandise shops


(5,123)



(6,344)




Net proceeds from settlement of note receivable


75,128



-




Investments in and advances to equity investees


(5,000)



(2,400)




Other, net




276



17




Net cash provided by investing activities of discontinued operations


634



137,759





     Net cash provided by investing activities


19,268



3,155















Cash Flows from Financing Activities:









Proceeds from borrowings under revolving credit agreement 


2,000



8,411




Repayment of borrowings under revolving credit agreement


(8,000)



(4,960)




Proceeds from issuance of Term Loan


-



398,000




Repayment of Senior Notes


-



(390,693)




Repayment of Term Loan


(3,000)



(2,000)




Principal payments under capital lease obligations


(459)



(410)




Proceeds from exercise of stock options


2,464



41,949




Payment of deferred financing fees 


(1,473)



(9,712)





     Net cash (used in) provided by financing activities


(8,468)



40,585















Effect of Exchange Rate Changes on Cash and Cash Equivalents


(2,569)



(4,282)















Net Change in Cash and Cash Equivalents


113,807



53,822



Cash and Cash Equivalents at Beginning of Year


184,044



130,222



Cash and Cash Equivalents at End of Year

$

297,851


$

184,044






































 

KATE SPADE & COMPANY

SEGMENT REPORTING

(Dollars in thousands)





































Segment


% of








 Net Sales 


Adjusted EBITDA (a)


 Sales 


Three Months Ended January 2, 2016 (13 Weeks)











KATE SPADE North America



$

371,314


$                          91,027


24.5  %



KATE SPADE International (b)




52,095


4,482


8.6  %



Adelington Design Group 




5,549


1,795


32.3  %




Total




$

428,958




























Segment


% of








 Net Sales 


Adjusted EBITDA (a)


 Sales 


Three Months Ended January 3, 2015 (13 Weeks)











KATE SPADE North America



$

326,745


$                          73,395


22.5  %



KATE SPADE International (b)




60,070


729


1.2  %



Adelington Design Group 




11,759


3,072


26.1  %



Other (c)





-


(255)


-




Total 




$

398,574




























Segment


% of








 Net Sales 


Adjusted EBITDA (a)


 Sales 


Twelve Months Ended January 2, 2016 (52 Weeks)










KATE SPADE North America



$

1,031,123


$                        177,593


17.2  %



KATE SPADE International (b)




188,151


17,697


9.4  %



Adelington Design Group 




23,446


4,523


19.3  %




Total




$

1,242,720




























Segment


% of








 Net Sales 


Adjusted EBITDA (a)


 Sales 


Twelve Months Ended January 3, 2015 (53 Weeks)










KATE SPADE North America



$

891,766


$                        143,009


16.0  %



KATE SPADE International (b)




213,582


810


0.4  %



Adelington Design Group 




33,255


4,092


12.3  %



Other (c)





-


(940)


-




Total 




$

1,138,603




















_______________










(a) 

Segment Adjusted EBITDA excludes: (i) depreciation and amortization; (ii) charges due to streamlining initiatives, brand-exiting activities and acquisition related costs; (iii) losses on asset disposals and impairments; and (iv) a $26,000 charge in the twelve months ended January 2, 2016 to terminate contracts with the Company's former joint venture partner in China.  The costs of all corporate departments that serve the respective segment are fully allocated. The Company does not allocate amounts reported below Operating income to its reportable segments, other than adjusted equity loss in its equity method investees. Refer to the tables entitled "Reconciliation of Non-GAAP Financial Information" for further information.


(b)

Amounts include equity in the adjusted losses of equity method investees of $1,286 and $1,225 for the three months ended January 2, 2016 and January 3, 2015, respectively, and $4,872 and $2,583 for the twelve months ended January 2, 2016 and January 3, 2015, respectively.  


(c) 

Other consists of expenses principally related to distribution functions that were included in Juicy Couture and Lucky Brand historical results, but are not directly attributable to those businesses and therefore have not been included in discontinued operations. 

 





KATE SPADE & COMPANY






RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION






(All amounts in thousands, except per share data)


















Reported (a)

Streamlining
Initiatives (b) 

 Adjusted Results 

Results of
Wind-Down
Operations (c)

Adjusted Results
(Excluding Wind-Down
Operations) (d)




Three Months Ended January 2, 2016 (13 Weeks)










Total Net Sales

$                      428,958


$                      428,958

$                         (1,153)

$                     427,805






   KATE SPADE North America

371,314


371,314

89

371,403






   KATE SPADE International

52,095


52,095

(1,242)

50,853






   Adelington Design Group

5,549


5,549


5,549
















Gross Profit

258,088


258,088

(262)

257,826
















SG&A

184,427

$                         (2,573)

181,854

(259)

181,595
















Operating Income

$                        73,661

$                          2,573

$                        76,234

$                                 (3)

$                        76,231

















Other expense, net

(6,359)

5,304

(1,055)


(1,055)






Interest expense, net

(5,170)


(5,170)


(5,170)






Provision for income taxes (e)

624

27,809

28,433

(1)

28,432





Income from Continuing Operations

$                        61,508

$                      (19,932)

$                        41,576

$                                 (2)

$                          41,574

















Basic Earnings per Common Share from
     Continuing Operations 

$                              0.48


$                              0.33


$                              0.33






Diluted Earnings per Common Share from
     Continuing Operations (f)

$                              0.48


$                              0.32


$                              0.32
















Reconciliation of Adjusted EBITDA:










Adjusted operating income, per above



$                          76,234

$                                 (3)

$                          76,231






Depreciation and amortization, asset impairments and losses on asset disposals, net (g)

16,219


16,219






Share-based compensation, net 



6,137


6,137






Other expense, net (h)



(1,155)


(1,155)





Adjusted EBITDA



$                          97,435

$                                 (3)

$                         97,432
















KATE SPADE North America



$                          91,027

$                               143

$                          91,170





KATE SPADE International (i)



4,482

171

4,653





Adelington Design Group 



1,795

(317)

1,478





Other (j)



131


131





Adjusted EBITDA



$                        97,435

$                                 (3)

$                        97,432



























_______________










(a)

Represents the results of Kate Spade & Company in accordance with accounting principles generally accepted in the US.





(b)

Represents charges due to streamlining initiatives comprised of: (i) payroll, contract termination costs, asset write-downs and other costs of $2,370; and (ii) store closure, other brand-exiting and acquisition related costs of $203.










(c)

Represents adjustments to remove the adjusted results of KATE SPADE SATURDAY, JACK SPADE brick and mortar, Kate Spade Brazil and Adelington Design Group exiting brands (Trifari, Trina Turk and Kensie).





(d)

Represents the adjusted results of the Company excluding the results of KATE SPADE SATURDAY, JACK SPADE brick and mortar, Kate Spade Brazil and Adelington Design Group exiting brands.  This is presented in order to provide adjusted results on the same basis as the Company's 2015 guidance.





(e)

Adjusted amounts represent adjusted pretax income multiplied by a normalized tax rate of 40.0%, plus $0.4 million for interest and penalties on uncertain tax positions. The normalized tax rate was derived by reference to statutory tax rates in the regions in which the Company operates, without giving effect to the Company's valuation allowance or potential use of its net operating loss carryforwards. 





(f)

Adjusted diluted earnings per share for the three months ended January 2, 2016 are based on 128,267 shares outstanding.  





(g)

Excludes amortization included in Interest expense, net.





(h)

Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of $3,908 and restructuring charges of $1,296 included in equity in the losses of equity method investees.





(i)

Amounts include equity in the adjusted losses of equity method investees of $1,286. 





(j)

Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of $3,908 and equity in the losses of equity method investees of $2,582.



 





KATE SPADE & COMPANY






RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION






(All amounts in thousands, except per share data)
















Reported (a)

Streamlining Initiatives (b)

 Adjusted Results 




Three Months Ended January 3, 2015 (13 Weeks)








Total Net Sales

$                      398,574


$                      398,574






   KATE SPADE North America

326,745


326,745






   KATE SPADE International

60,070


60,070






   Adelington Design Group

11,759


11,759














Gross Profit

230,224


230,224














SG&A

181,767

$                                  (4,637)

177,130














Impairment of Intangible Asset

1,533

(1,533)

-














Operating Income

$                        46,924

$                                    6,170

$                        53,094















Other expense, net

(2,316)


(2,316)






Interest expense, net 

(1,993)


(1,993)






(Benefit) provision for income taxes (c)

(83,879)

101,559

17,680





Income from Continuing Operations

$                      126,494

$                                (95,389)

$                        31,105















Basic Earnings per Common Share from
     Continuing Operations 

$                              0.99


$                              0.24






Diluted Earnings per Common Share from
     Continuing Operations (d)

$                              0.99


$                              0.24























Reconciliation of Adjusted EBITDA:








Adjusted operating income, per above



$                          53,094






Depreciation and amortization, asset impairments and losses on asset disposals, net (e)

19,632






Share-based compensation, net (f)



5,440






Other expense, net (g)



(1,490)





Adjusted EBITDA



$                          76,676























KATE SPADE North America



$                          73,395





KATE SPADE International (h)



729





Adelington Design Group 



3,072





Other (i)



(520)





Adjusted EBITDA



$                          76,676























_______________








(a)

Represents the results of Kate Spade & Company in accordance with accounting principles generally accepted in the US.





(b)

Represents charges due to streamlining initiatives comprised of: (i) payroll, contract termination costs, asset write-downs and other costs of $6,973 and (ii) store closure, other brand-exiting and acquisition related credits of ($2,336). 










(c)

Adjusted amount represents adjusted pretax income multiplied by a normalized tax rate of 40.0%, less $1.8 million for interest and penalties on uncertain tax positions. The normalized tax rate was derived by reference to statutory tax rates in the regions in which the Company operates, without giving effect to the Company's valuation allowance or potential use of its net operating loss carryforwards. 





(d)

Adjusted diluted earnings per share for the three months ended January 3, 2015 are based on 127,741 shares outstanding.  





(e)

Excludes amortization included in Interest expense, net.





(f)

Excludes $0.1 million of share-based compensation expense that was classified as restructuring.





(g)

Amount is Other expense, net as shown above, net of foreign currency transaction adjustment of $826.





(h)

Includes equity in the losses of equity method investee of $1,225.





(i)

Amount includes ($255) principally related to distribution functions that were included in Juicy Couture and Lucky Brand historical results, but are not directly attributable to those businesses and therefore have not been included in discontinued operations and Other expense, net, above, net of foreign currency transaction adjustment of $826 and equity in the losses of equity method investee of $1,225.

























KATE SPADE & COMPANY






RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION






(All amounts in thousands, except per share data)


















Reported (a)

Streamlining
Initiatives and JV
Termination Fee (b) 

 Adjusted Results 

Results of
Wind-Down
Operations (c)

Adjusted Results
(Excluding Wind-
Down Operations) (d)




Twelve Months Ended January 2, 2016 (52 Weeks)










Total Net Sales

$                  1,242,720


$                  1,242,720

$                      (27,309)

$                1,215,411






   KATE SPADE North America

1,031,123


1,031,123

(12,891)

1,018,232






   KATE SPADE International

188,151


188,151

(12,701)

175,450






   Adelington Design Group

23,446


23,446

(1,717)

21,729
















Gross Profit

754,107


754,107

(11,389)

742,718
















SG&A

687,709

$                      (61,317)

626,392

(15,066)

611,326
















Operating Income

$                        66,398

$                        61,317

$                      127,715

$                          3,677

$                     131,392

















Other expense, net

(11,137)

5,830

(5,307)


(5,307)






Loss on settlement of note receivable

(9,873)

9,873

-


-






Interest expense, net

(19,152)


(19,152)


(19,152)






Provision for income taxes (e)

4,528

37,412

41,940

1,471

43,411





Income from Continuing Operations

$                        21,708

$                        39,608

$                        61,316

$                          2,206

$                       63,522

















Basic Earnings per Common Share from
     Continuing Operations 

$                              0.17


$                              0.48


$                           0.50






Diluted Earnings per Common Share from
     Continuing Operations (f)

$                              0.17


$                              0.48


$                           0.50
















Reconciliation of Adjusted EBITDA:










Adjusted operating income, per above



$                        127,715

$                            3,677

$                     131,392






Depreciation and amortization, asset impairments and losses on asset disposals, net (g)

51,699

(550)

51,149






Share-based compensation, net (h)



25,271


25,271






Other expense, net (i)



(4,910)


(4,910)





Adjusted EBITDA



$                        199,775

$                            3,127

$                     202,902
















KATE SPADE North America



$                        177,593

$                            3,074

$                     180,667





KATE SPADE International (j)



17,697

646

18,343





Adelington Design Group 



4,523

(593)

3,930





Other (k)



(38)


(38)





Adjusted EBITDA



$                      199,775

$                          3,127

$                   202,902



























_______________










(a)

Represents the results of Kate Spade & Company in accordance with accounting principles generally accepted in the US.





(b)

Represents charges due to streamlining initiatives comprised of: (i) payroll, contract termination costs, asset write-downs and other costs of $35,395; (ii) store closure, other brand-exiting and acquisition related credits of $(78); and (iii) a $26,000 charge related to the termination of certain contracts with the Company's former joint venture partner in China. 










(c)

Represents adjustments to remove the adjusted results of KATE SPADE SATURDAY, JACK SPADE brick and mortar, Kate Spade Brazil and Adelington Design Group exiting brands (Trifari, Trina Turk and Kensie).





(d)

Represents the adjusted results of the Company excluding the results of KATE SPADE SATURDAY, JACK SPADE brick and mortar, Kate Spade Brazil and Adelington Design Group exiting brands.  This is presented in order to provide adjusted results on the same basis as the Company's 2015 guidance.





(e)

Adjusted amounts represent adjusted pretax income multiplied by a normalized tax rate of 40.0%, plus $0.6 million for interest and penalties on uncertain tax positions. The normalized tax rate was derived by reference to statutory tax rates in the regions in which the Company operates, without giving effect to the Company's valuation allowance or potential use of its net operating loss carryforwards. 





(f)

Adjusted diluted earnings per share for the twelve months ended January 2, 2016 are based on 128,222 shares outstanding.  





(g)

Excludes amortization included in Interest expense, net.





(h)

Excludes $0.3 million of share-based compensation expense that was classified as restructuring.





(i)

Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of $4,405 and restructuring charges of $1,822 included in equity in the losses of equity method investees.





(j)

Amounts include equity in the adjusted losses of equity method investees of $4,872. 







(k)

Amount is reported Other expense, net as shown above, net of foreign currency transaction adjustment of $4,405 and equity in the losses of equity method investees of $6,694.





















 




KATE SPADE & COMPANY






RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION






(All amounts in thousands, except per share data)
















Reported (a)

Streamlining Initiatives
and Loss on
Extinguishment of Debt (b)

 Adjusted Results 




Twelve Months Ended January 3, 2015 (53 Weeks)








Total Net Sales

$                  1,138,603


$                  1,138,603






   KATE SPADE North America

891,766


891,766






   KATE SPADE International

213,582


213,582






   Adelington Design Group

33,255


33,255














Gross Profit

680,271


680,271














SG&A

645,266

$                                (40,153)

605,113














Impairment of Intangible Asset

1,533

(1,533)

-














Operating Income

$                        33,472

$                                  41,686

$                          75,158















Other expense, net

(4,033)

-

(4,033)






Loss on extinguishment of debt

(16,914)

16,914

-






Interest expense, net (c)

(20,178)

2,302

(17,876)






(Benefit) provision for income taxes (d)

(84,379)

105,984

21,605





Income from Continuing Operations

$                        76,726

$                                (45,082)

$                          31,644















Basic Earnings per Common Share from
     Continuing Operations

$                              0.61


$                              0.25






Diluted Earnings per Common Share from
     Continuing Operations (e)

$                              0.60


$                              0.25























Reconciliation of Adjusted EBITDA:








Adjusted operating income, per above



$                          75,158






Depreciation and amortization, asset impairments and losses on asset disposals, net (f)

54,403






Share-based compensation, net (g)



19,993






Other expense, net (h)



(2,592)





Adjusted EBITDA



$                        146,962























KATE SPADE North America



$                        143,009





KATE SPADE International (i)



810





Adelington Design Group 



4,092





Other (j)



(949)





Adjusted EBITDA



$                        146,962























_______________








(a)

Represents the results of Kate Spade & Company in accordance with accounting principles generally accepted in the US.





(b)

Represents charges due to streamlining initiatives comprised of: (i) payroll, contract termination costs, asset write-downs and other costs of $41,952; (ii) store closure, other brand-exiting and acquisition related credits of $(2,501) and (iii) a non-cash write-off of debt issuance costs included in SG&A of $702. 










(c)

Adjustment reflects a non-cash write-off of debt issuance costs associated with the amended and restated revolving credit facility for the twelve months ended January 3, 2015. 





(d)

Adjusted amount represents adjusted pretax income multiplied by a normalized tax rate of 40.0%, plus $0.3 million for interest and penalties on uncertain tax positions. The normalized tax rate was derived by reference to statutory tax rates in the regions in which the Company operates, without giving effect to the Company's valuation allowance or potential use of its net operating loss carryforwards. 





(e)

Adjusted diluted earnings per share are based on 127,019 shares outstanding. 





(f)

Excludes amortization included in Interest expense, net.





(g)

Excludes $17.3 million of share-based compensation expense that was classified as restructuring.





(h)

Amount is Other expense, net as shown above, net of foreign currency transaction adjustment of $1,441.





(i)

Includes equity in the losses of equity method investee of $2,583.





(j)

Amount includes ($940) principally related to distribution functions that were included in Juicy Couture and Lucky Brand historical results, but are not directly attributable to those businesses and therefore have not been included in discontinued operations and Other expense, net, above, net of foreign currency transaction adjustment of $1,441 and equity in the losses of equity method investee of $2,583.




























KATE SPADE & COMPANY



RECONCILIATION OF NON-GAAP NET SALES INFORMATION



(Dollars in thousands)






The following table provides reconciliations of Net Sales as reported to Net Sales excluding wind-down operations (a) in 2015 and to Net Sales excluding wind-down operations and adjusting for the impacts of changes in foreign currency exchange rates and strategic initiatives in 2014 (b).





















Three Months Ended











January 2, 2016


January 3, 2015


Variance








(13 Weeks)


(13 Weeks)


$

%



Total Company











Net Sales as reported



$                         428,958


$                        398,574


$           30,384

7.6%



Less:

Net sales for wind-down operations (a)


(1,153)


(20,342)







Net sales impact of strategic initiatives (b)


-


1,912







Foreign currency impact


-


(4,710)






Adjusted Net Sales 



$                         427,805


$                        375,434


$           52,371

13.9%
















KATE SPADE North America










Net Sales as reported



$                         371,314


$                        326,745


$           44,569

13.6%



Less:

Net sales for wind-down operations (a)


89


(13,428)







Foreign currency impact


-


(2,520)







North America quality of sale initiatives


-


12,500






Adjusted Net Sales 



$                         371,403


$                        323,297


$           48,106

14.9%
















KATE SPADE International











Net Sales as reported



$                           52,095


$                           60,070


$           (7,975)

-13.3%



Less:

Net sales for wind-down operations (a)


(1,242)


(4,455)







Net sales impact of strategic initiatives 


-


(10,588)







Foreign currency impact


-


(2,190)






Adjusted Net Sales 



$                           50,853


$                           42,837


$             8,016

18.7%
















Adelington Design Group











Net Sales as reported



$                             5,549


$                           11,759


$           (6,210)

-52.8%



Less:

Net sales for wind-down operations (a)


-


(2,459)






Adjusted Net Sales 



$                             5,549


$                             9,300


$           (3,751)

-40.3%





























_______________











(a)

Represents net sales for KATE SPADE SATURDAY, JACK SPADE brick and mortar, Kate Spade Brazil and Adelington Design Group exiting brands (Trifari, Trina Turk and Kensie).



(b)

Represents the estimated impact on net sales of strategic initiatives announced in 2015, including the conversion of the Hong Kong, Macau and Taiwan territories to a joint venture and North America quality of sale initiatives.




























 

 


KATE SPADE & COMPANY



RECONCILIATION OF NON-GAAP NET SALES INFORMATION



(Dollars in thousands)






The following table provides reconciliations of Net Sales as reported to Net Sales excluding wind-down operations (a) in 2015 and to Net Sales excluding wind-down operations and adjusting for the impacts of the 53rd week, changes in foreign currency exchange rates and strategic initiatives in 2014 (b).





















Twelve Months Ended











January 2, 2016


January 3, 2015


Variance








(52 Weeks)


(53 Weeks)


$

%



Total Company











Net Sales as reported



$                     1,242,720


$                     1,138,603


$        104,117

9.1%



Less:

Net sales for wind-down operations (a)


(27,309)


(60,879)







Net sales impact of strategic initiatives (b)


-


(25,614)







Additional week in 2014



-


(17,900)







Foreign currency impact


-


(26,802)






Adjusted Net Sales 



$                     1,215,411


$                     1,007,408


$        208,003

20.6%
















KATE SPADE North America










Net Sales as reported



$                     1,031,123


$                        891,766


$        139,357

15.6%



Less:

Net sales for wind-down operations (a)


(12,891)


(36,228)







Additional week in 2014



-


(13,973)







Foreign currency impact


-


(6,914)







North America quality of sale initiatives


-


2,548






Adjusted Net Sales 



$                     1,018,232


$                        837,199


$        181,033

21.6%
















KATE SPADE International











Net Sales as reported



$                         188,151


$                        213,582


$         (25,431)

-11.9%



Less:

Net sales for wind-down operations (a)


(12,701)


(15,287)







Net sales impact of strategic initiatives


-


(28,162)







Additional week in 2014



-


(3,927)







Foreign currency impact


-


(19,888)






Adjusted Net Sales 



$                         175,450


$                        146,318


$           29,132

19.9%
















Adelington Design Group











Net Sales as reported



$                           23,446


$                           33,255


$           (9,809)

-29.5%



Less:

Net sales for wind-down operations (a)


(1,717)


(9,364)






Adjusted Net Sales 



$                           21,729


$                           23,891


$           (2,162)

-9.0%





























_______________











(a)

Represents net sales for KATE SPADE SATURDAY, JACK SPADE brick and mortar, Kate Spade Brazil and Adelington Design Group exiting brands (Trifari, Trina Turk and Kensie).



(b)

Represents the estimated impact on net sales of strategic initiatives announced in 2015, including the conversion of the Hong Kong, Macau and Taiwan territories to a joint venture and North America quality of sale initiatives.
































 

 

SOURCE Kate Spade & Company



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