Kenneth Cole Productions (NYSE:KCP)

CAPS Rating: No stars

The Company designs, sources and markets a range of fashion footwear and handbags and, through license agreements, designs and markets apparel and accessories.


Player Avatar NetscribeConsGds (97.56) Submitted: 2/2/2007 7:08:42 AM : Outperform Start Price: $22.38 KCP Score: -73.19

Kenneth Cole Productions (KCP) designs, sources and markets a broad range of fashion footwear and handbags, with markets apparel and accessories contributing a meager 7% to the top-line. The company markets its products to more than 7,500 department and specialty store locations, as well as through its Consumer Direct business, which includes more than 80 retail and outlet stores, consumer catalogs and interactive websites, including on-line e-commerce.

Footwear market is growing and interestingly, even athletic footwear is becoming more fashion-oriented and has reached $19 billion by 2006. The highly competitive fashion footwear market demands rapid flexibility with multiple product lines to match the changing consumer tastes and preferences. This goes well with the company, as its product mainly targets people who are fashion conscious. Further, the company has made strategic initiatives to elevate and reposition its brands which will help them to be in a better position to grow domestically as well as internationally.

On a negative front, KCP’s handbags business has been hampered due to decrease in demand. However, company’s focus on sportswear should generate enough revenue that could offset the loss from handbags business. Further, the recently amended agreement with Paul Davril would cause some slide in its licensing revenues.

The company’s top-line saw a rise of 5.8% led by strong growth in the Kenneth Cole Reaction branded footwear products, partly offset by declines in the company’s handbag businesses. Further, the company has been able to maintain its gross margin around 40%. KCP’s efforts to strive internationally and focus on sportswear should boost its sales and thereby enhance shareholders value.

Member Avatar NetscribeConsGds (97.56) Submitted: 4/24/2007 6:15:41 AM
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Kenneth Cole Productions is a designer and marketer of broad range of fashion footwear and handbags. Branding and marketing strategy plays a crucial role to survive in this fiercely competitive market. Ineffective execution of KCP’s brand elevation strategy has backfired the company and has negatively impacted the performance of Consumer Direct business. The company has abruptly hiked the prices of its products resulting a decline in retail stores sales, which contributes significantly to revenues of Consumer Direct segment. However, increased sale of Kenneth Cole Reaction footwear and handbags has boosted the performance of Wholesale business, which has helped the company to post an overall increase in revenues by 3.6% in fiscal 2006.

Gross margin for fiscal 2006 has deteriorated by 200 basis points as a result of change in revenue mix from its three segments. A decline in contribution from its higher margin Consumer Direct segment was the main culprit for this debacle in gross margin. Moreover, lower contribution from its Licensing segment, which carries no cost of goods sold, has further aggravated the problem.

The company has taken initiatives to address the concerns at Consumer Direct segment by controlling its inventory levels in order to reduce clearance product, adjusting its product mix to incorporate a wider range of price points, and evaluating its real estate portfolio with plans to close several stores, and simultaneously reviewing opportunities for new store locations for the latter half of 2007. Company’s focus on new product offerings, design, pricing and distribution should elevate its brand name and thereby increase consumer demand. These initiatives should help Kenneth Cole to outperform the S&P in the coming fiscal.

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