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Kate Spade stock falls 23 percent on concerns over sales growth

The Kate Spade store at Walt Whitman Shops

The Kate Spade store at Walt Whitman Shops in Huntington Station. Credit: Matthew T. Murray

Kate Spade & Co.'s second-quarter loss narrowed as the clothing, handbag and accessories company's adjusted profit and revenue topped analysts' expectations. But worries about slowing sales growth sent its shares sharply lower in afternoon trading Tuesday.

In a conference call, chief rinancial officer and chief operating officer George Carrara said that the company's comparable sales growth for the second half of the year is expected to be in the high single-digit range compared with an almost 30 percent increase in the first half of the year.

Carrara cited several factors, including the impact of some store relocations, an extra week in the first half, the shift of July 4 sales out of the second half and a planned pullback in surprise sales in the third and fourth-quarters.

Carrara also said that Kate Spade anticipates its full-year gross margin rate falling about 125 to 175 basis points due to a more promotional retail environment and sluggishness of its Kate Spade Saturday brand. The executive said that the company is considering putting off its profit margin targets for 2016 until 2017 because of the longer-than-expected ramp up of the Saturday brand, its revised 2014 margin rate guidance and limited visibility into 2016.

Shares of Kate Spade tumbled $9.87, or 25 percent, to close at $29 after rising as high as $42.87 earlier in the day.

For the period ended July 5, Kate Spade reported a loss of $4.4 million, or 3 cents per share. That compares with a loss of $43.1 million, or 36 cents per share, a year ago. Loss from continuing operations was 11 cents per share compared with a loss from continuing operations of 20 cents per share in the prior-year period.

Stripping out certain items, earnings were 5 cents per share. Analysts surveyed by FactSet predicted break-even results.

Revenue for the New York company rose 49 percent to $266 million from $178.9 million, beating Wall Street's estimate of $243.4 million.

North American sales increased 55 percent in the quarter and climbed 54 percent internationally. This was somewhat offset by a 31 percent sales decline at the Adelington Design Group, which includes the licensed Liz Claiborne New York brand, exclusive jewelry supply arrangements for the Liz Claiborne and Monet brands, the wholesale non-apparel operations of the Trifari brand and licensed Kensie brand and the wholesale apparel and wholesale non-apparel operations of the licensed Lizwear brand and other brands.

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