Kate Spade & Company (NYSE:KATE)

CAPS Rating: 2 out of 5

The Company designs and markets a portfolio of branded women's and men's apparel, accessories and fragrance products. Brands include CLAIBORNE, CURVE, CRAZY HORSE, DANA BUCHMAN, ELISABETH, EMMA, JAMES, FIRST ISSUE and RUSS.


Player Avatar ksiu1 (75.35) Submitted: 4/2/2011 12:54:41 PM : Underperform Start Price: $5.30 KATE Score: -407.49

Keeping my focus within my sphere of knowledge. I think Liz will continue to struggle as it's caught between two conflicting forces. First is its agent agreement with Li & Fung which is a public company listed in HK. Li and Fung's primary source of manufacturing is Asia. As inflation on that continent increase, so will costs and Li & Fung isn't going to be the one taking the hit on that. They're simply going to tell Liz "Here's the price" and Liz will be paying a % of it to Li & Fung. And it's not like Liz can shop around since according to their annual report they pretty locked in. Further conflict of interest is that Li&Fung owns brands that they sell to dept stores themselves. It's in their best interest to use their best suppliers and lock up the most affordable raw material prices for their own brands. If that wasn't bad enough Liz also has to contend with their retail partners JC Penney and QVC. While I'm not a retail expert I know that retailers these days aren't partners with their wholesale sources. They will squeeze first and ask questions later. They may even be justified in doing so given Liz's challenges in sourcing quality product at reasonable prices that I mentioned above. Finally they're operating from a position of weakness when their fundamental focus has to be on managing their brands and merchandising. Their exec's are busy trying to manage cash flow and are probably distracted. It's a vicious little cycle. Soon they'll be selling brands to raise money.

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