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Will Kate Spade's (KATE) Earnings Surprise Estimates in Q4? - Analyst Blog

Kate Spade & Company (KATE) is slated to report its fourth-quarter 2014 results on Jan 29, 2015, before the opening bell. In the last quarter, the company had delivered a significant negative earnings surprise. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Although Kate Spade delivered a negative surprise in the previous quarter, its breakeven earnings fared better than the prior-year comparable period’s adjusted loss of 8 cents a share. Kate Spade has been benefiting from its improved financial performance along with constant focus on geographic and product category expansion, which have been fueling growth. Moving ahead, the company expects to drive results on the back of its solid brand portfolio, diverse business model and commitment toward enhancing operating margins.

Management now expects adjusted EBITDA for 2014 to come in between $130 million and $140 million, compared with the earlier guidance of $120–$130 million. Similarly, adjusted EBITDA margin is projected to expand over 150 basis points (bps) versus the previous forecast of not more than 150 bps.

Though the aforementioned factors make us optimistic about the upcoming results, we remain slightly cautious owing to the volatility in the promotional environment, foreign exchange headwinds and supply chain inefficiencies.

Earnings Whispers

Our proven model does not conclusively show that Kate Spade is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at 24 cents.

Zacks Rank: Kate Spade carries a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Bebe Stores Inc. (BEBE) has an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).

J. C. Penney Company Inc. (JCP) has an Earnings ESP of +23.08% and a Zacks Rank #2.

Archer Daniels Midland Company (ADM) has an Earnings ESP of +5.50% and a Zacks Rank #3 (Hold).
 


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