NY-based hedge fund urges Kate Spade to consider a sale

By

Barbara Santamaria

Published
Nov 15, 2016

In a letter sent to the Board of Directors of Kate Spade, Caerus Investors has urged the company to pursue a sale stating that shareholders have lost confidence in the brand’s management and their ability to meet goals.

“We are deeply concerned about the precipitous decline in the share price of Kate Spade over the last two and a half years brought about by management’s inability to meet their own stated goals,” read the letter written by the New York City-based hedge fund.

Caerus did not disclose the size of its stake in Kate Spade but said shareholders, including itself, are “incredible frustrated” as the company’s management has missed interim sales and margin targets on 3 different occasions.

Kate Spade’s EBITDA margins are 400-1000bps below peers and while revenues are expected to grow 11% this year, the brand’s stock is trading at a discount to its peers, added the shareholder.

“While we have long admired the growth prospects for the Kate Spade brand, we have become increasingly frustrated by management’s inability to achieve profit margins comparable to industry peers. Given the market’s lack of faith in the current management team, as evidenced by the 63% decline in the shares since the intraday high on August 11th, 2014, we believe the best path for enhancing shareholder value is to pursue a sale of the company,” continued Caerus.

According to the letter, Kate Spade would be better suited in the hands of a larger, more experienced global player and would make a great acquisition candidate for a strategic company in the lifestyle accessories category.

Earlier in August Kate Spade adjusted is full-year sales and profit forecasts following lower-than-expected profit in the second quarter. However, in the first nine months of the year, the company has increased its net sales by 11.9% and reached $65 million in income from continuing operations, versus a $40 million loss in 2015.