Handbag and accessories maker Kate Spade posted lower-than-expected comparable store sales, hurt by weak demand for its off-price products and as fewer tourists shopped at its stores.
Shares of the company, which also warned of high pricing pressure ahead of the holiday season, fell 9.7 percent in morning trading on Wednesday, their lowest in nearly four years.
Kate Spade‘s same-store sales, including online sales, rose 6.7 percent in the third quarter ended Oct.1, but missed the average analyst estimate of 7.4 percent growth, according to research firm Consensus Metrix.
The company’s gross margin declined as it spent more on promotions to clear merchandise at off-price stores and tested lower price-points for certain products to attract customers.
Kate Spade said its gross margin fell 59.4 percent in the quarter, compared with a growth of 61.2 percent in the year-ago period, even though the company cut costs.
Net sales in North America, Kate Spade‘s largest market, rose 13.7 percent to $260 million in the quarter.
Kate Spade plans for a very competitive pricing environment in the upcoming holiday season, company executives said on an analyst call.
“Plan to very, very high level pricing pressure just going into the all-important holiday season,” Chief Executive Craig Leavitt told analysts, adding that gross margins could decline in excess of 50 basis points.
Analysts on average are expecting a gross margin of 59.7 percent in the fourth quarter, according to StarMine.
Excluding items, the company earned 13 cents per share, beating estimates of 8 cents per share, as selling, general and administrative expenses fell 4.2 percent.
Net income jumped to $29.6 million, or 23 cents per share, in the third quarter ended Oct. 1, from $2.3 million, or 2 cents per share, a year earlier.
Net sales for Kate Spade, which is known for its quirky and colorful satchels and totes, rose 14 percent to $316.5 million, higher than the average analyst estimate of $310.7 million, according to Thomson Reuters I/B/E/S.
The company also re-affirmed its full year forecast for sales and profit.