While Kate Spade New York saw net sales increase 13.7 percent to $320 million in the three months ending July 2, the quarter didn't meet the expectations of the brand's execs, who are still solidly focused on reaching their goal of turning Kate Spade into a $4 billion dollar business. It lowered its projected total yearly sales from at least $1.385 billion to $1.370 billion. In 2015, the company reached $1.243 billion in net sales.
On an earnings call Wednesday, CEO Craig Leavitt and COO George Carrara cited several factors that caused problems. A slowdown in tourist activity, as literally always, impacted the bottom line, as did Kate Spade's strategy to offer less frequent and less intense sales. Shoppers who were accustomed to taking advantage of the brand's promotions waited for deeper discounts and ended up buying less when those sales didn't happen. Leavitt stressed the importance of expanding the number of customers who are willing to shop at full price, which he said increased during the quarter. But to adjust throughout the rest of the year, Kate Spade will offer more flash sales than it had originally planned, and more than it offered in 2015. These won't be store-wide sales, but rather, specific to certain categories. And they'll still be one-third less frequent than in peak promotional years.
Another hiccup in the second quarter was the result of not enough inventory. The company was slowly phasing out its Cedar Street line of handbags to be replaced with the Cameron Street line, and didn't anticipate customers responding so positively and so quickly to the latter. Popular styles sold out and weren't replenished fast enough, though Leavitt said that won't be a problem for the rest of 2016 as the brand prioritizes and expands the Cameron line. The positive response is also good news for Kate Spade because the average bag price is higher than that of the Cedar Street line.
The company saw sales of it most expensive bags — the Madison collection, priced at $350 or more — increase, too. In addition to expanding those offerings, Kate Spade plans to follow the personalization trend and expand monogramming and offer interchangeable straps for select handbags.
Meanwhile, Kate Spade's e-commerce sales stopped growing as fast as they did in the first quarter of the year, as order totals went down and conversion rates decreased. It is planning to invest in shipping by automating and expanding same day delivery by early 2017.