Analyst Sees Kate Spade Takeover Price Target In The $18-21 Range

Kate Spade & Co KATE shares dropped following a first-quarter sales miss that also saw comps decline 2 percent.

With talks of a potential acquisition of Kate Spade from bigger players Coach Inc COH or Michael Kors Holdings Ltd KORS, the latest earnings release may provide a discount to the potential purchase price. The company didn't hold a conference call following the earnings release, citing the ongoing process of selling itself according to Bloomberg.

Analyst Commentary

“This is the first negative comp in recent history, which is disappointing and changes the trajectory of multiples given the fact that Kate is viewed and has been a growth retailer,” Oppenheimer analyst Anna Andreeva told Benzinga. “ The stock is resetting lower as a result and the range of multiples in this transaction is coming down.”

While weaker industry traffic as a whole has played a role in Spade’s dissapointing numbers, Oppenheimer still believes, despite Kate Spade's results, a takeover is still likely.

“Kate is under-earning compared to the likes of Coach or Kors so certainly profitability enhances would be substantial,” said Andreeva.

Andreeva sees Coach’s latest executive shuffle that brought in former Bergdorf Goodman president Joshua Schulman as president and CEO of Coach brand as a positive catalyst for a potential Kate Spade takeover.

Coach currently controls 20 percent of the $12 billion North American handbag market, by adding Kate Spade’s 10 percent market share, a merger would give the company a third of the entire market share and considerable syngergies in combining operations.

“Coach could be getting Kate Spade at a better price given the recent negative surprise. On the lower end of our estimates, we are likely seeing a takeover in the $18–21 range.”

Related Links:

Wells Fargo Weighs In On Kate Spade Takeover Talk

Why The Street Believes Kate Spade Will Be Acquired, But Has Doubts On Angie's List

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Image Credit: By Kate Spade (http://www.katespade.com/) [Public domain], via Wikimedia Commons