Kate Spade, Ralph Lauren Shares Rally as Upscale Brands Recover

A Kate Spade & Co. Store Ahead Of Earnings Figures

A handbag hangs on display in the window of a Kate Spade store.

Photographer: David Paul Morris/Bloomberg

Kate Spade & Co. and Ralph Lauren Corp. jumped in New York trading after posting better-than-predicted results, a sign that upscale brands are beginning to recover from a global slump.

Kate Spade, the New York-based maker of apparel and accessories, reported same-store sales that exceeded estimates last quarter and raised its forecast for the the year. Ralph Lauren posted quarterly earnings of $1.09 a share, excluding restructuring expenses and other items, topping the average analyst estimate of about $1.

U.S. fashion brands have struggled with a strong dollar, which has curbed the value of overseas revenue and hampered tourist spending at home. And concerns that handbag sales are slowing have weighed on companies like Kate Spade, Coach Inc. and Michael Kors Holdings Ltd. That fog could be lifting. Coach also topped estimates this week, saying new products had helped fuel sales.

At Ralph Lauren, a global reorganization is simplifying the business, while helping improve efficiency and profit margins. The New York-based company also has expanded into new product lines as it tries to combat heavy discounting in the U.S.

“You want to see profitability improve,” said Paul Swinand, an analyst at Morningstar Investment Services. “The stuff they talk about sounds logical and may help brand image -- if you’ve got too many chefs in the kitchen you end up with dissonance sometimes.”

Ralph Lauren rose as much as 4.7 percent to $129.16 in New York after the results were released. The stock had fallen 33 percent this year through Tuesday’s close. Kate Spade shares jumped as much as 13 percent to $23.47, helping them recover from a 35 percent decline this year.

Lifestyle Brand

Kate Spade has benefited from a transformation into a lifestyle brand, rather than just a company known for handbags. It boosted the low end of its full-year earnings forecast to $190 million, up from $185 million, and raised its direct-to-consumer sales forecast. Comparable sales also topped analysts’ estimates last quarter.

The recovery may only be in the early stages for some brands. Ralph Lauren, known for Polo, Chaps and Club Monaco, saw comparable-store sales fall 2 percent last quarter when excluding the effect of currency. That missed analyst projections.

Sales through the company’s wholesale channel fell 6 percent on that basis, hurt by an early Easter holiday, the retailer said. Licensing sales increased 6 percent, and retail sales grew 3 percent.

“Our new organizational structure will allow us to make our already powerful brands even stronger, and the investments we are making today will create significant value for shareholders over the long term,” Chief Executive Officer Ralph Lauren said in Wednesday’s statement.

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