Kate Spade & Company (KATE) shares rallied 14.69% to $22.56 after a reporting a mixed fourth-quarter that was accompanied with an update on strategic review alternatives. Profit came in at $0.41 a share, a strong beat to the $0.35 forecast. Revenue printed at $471 million, a miss from the eyed $474 million forecast.
The company is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The Board plans to proceed in a timely manner, but has not set a definitive timetable for completion of this process. There can be no assurance that this review process will result in a transaction or other strategic alternative of any kind. The Company does not intend to disclose developments or provide updates on the progress or status of this process or discuss with investors the Company's results of operations until it deems further disclosure is appropriate or required. Additionally, no forward-looking guidance will be provided at this time.
COO Carrara noted, “"We are pleased to report top-line growth of 14% for the full-year. In 2016, we delivered Adjusted EBITDA margin expansion of 220 basis points compared to the prior year, reflecting our ongoing focus on expense management, as well as the benefit of lower annual incentive compensation year-over-year. We generated robust cash flow and ended the year in a strong financial position, and with nearly $500 million in cash.”
Price action on the KATE daily chart shows that after the earnings update, price broke out above the key $20.00 resistance level. If the bullish move continues, price may not find resistance until the $26.50 level. It is around that area that price could form a double top pattern. If we see the bullish stance stall here, key support will come from the $21.30 level.
The Trade: Buy KATE at $22.00, with a stop loss at $21.50 and a take profit at $23.50. The Risk/Reward Ratio is 1:3