Kate Spade Takes Hard Hit After CFO Conference Call

CFO talked about the companies tough financial future, which got the attention of investors.
5:28 | 08/12/14

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Transcript for Kate Spade Takes Hard Hit After CFO Conference Call
I'm -- Nona in Washington as the financial markets close on Wall Street for Tuesday August 12 this is story stock. Today a look at Kate Spade in the clothing -- -- and accessories company posted a huge increase in second quarter revenue. But then its financial its chief financial officer said something on a conference call. And here to explain what was said and what happened next is -- -- toll of Yahoo! finance thanks for joining us Mike. -- -- up and down day for Kate Spade first the company airports this huge pop in second quarter earnings. What kind of numbers are we talking about. While decent numbers and in terms of second quarter earnings that beat analysts forecast and also the revenue number. Was relatively strong so I think. Basically before we actually heard from the company -- -- in the press -- Wall Street's initial reaction was great the upbeat story that we expected is pretty much intact. And then during the regular quarterly conference call they really a lot of -- water splashed. On that view when the CFO kind of elaborated on the outlook. For the rest here and that was well below what people were hoping here. And -- a little bit more about that the CFO. Says to invest it. That what what exactly did he stated investors -- that outlook well. Let's a kind of a mess of things that investors didn't want to hear one was that same store sales. Growth in the second half of the year they were saying is going to be much slower than expected high single digits as opposed about 30% in the first half of the year. Also profit margins are expected to come under pressure there's a variety of reasons for that including the fact that. They're just being very promotional -- having to discount a fair bit and I think that what might have been most concerning was they're saying that they're standing. Outlook for next fiscal year there. Is actually for potentially not going to be met in terms of profit margin expansion and things they've already told. Wall Street to expect they might have to push that off because of a bunch of different operating. Issues that they're trying to fight through so essentially that the take away I think. For analysts and investors was that the company just does not have. Its act together in terms of pursuing it stated growth plan and strategy the way we thought they did before today. And after those comments were made -- made what exactly happened stock price. Yeah that's amazing it was up Bob you know 9% or something before the call started then it fell as much 25% down 20% or so. I its staff for a loss on the year and I think. For context here you have to keep in mind this was one of the best performing kind of fashion and apparel companies. Year to date coming into this news so the stock had been up some 25%. From -- the turn of the year to its high just in the past couple of weeks so clearly investors account have been piling into the optimistic side of the boat. They got they shocked today and I do think. That there's a definitely. A little bit of kind of misgivings about the CEO and and the CEOs. Potentially having been misleading. Not intentionally misleading the basic couldn't be trusted to follow through on a lot of promises for how this company was going to be -- keep this one thing in mind. Kate Spade was renamed Kate Spade only early this year this is the old Liz Claiborne company bunch of old fashion -- it's not just. Kind of a I trendy fashion handbags and accessories company as the Kate's big name implies they're trying to transform themselves and I think the news today. Was really that -- transformation. Is is hitting if you -- -- A steep decline in stock price in just one day in your opinion does that sell off make sense. It doesn't make sense in that context of what Wall Street expectations war so yes I mean essentially because the stock had run up so much coming into this news. You know that was all based on the premise that this company had great. Momentum in terms of profit margin expansion at some point may be this becomes a bargain and a lower price I don't really know I would. Point out there's a lot of skepticism regarding this entire space right now. Coach has had a tough couple of years they were always considered to be an excellent competitor with a great -- and they've had a hard time kind of finding the right price point and really. Having sort of -- a thorough look at what the demand is. -- are among -- core customers. So what does this tell us as investors it does this mean this is a good -- bad time to be investing in coach or -- various -- under other luxury brands. And if Kate -- in trouble. I wouldn't take it's based in trouble mean business has been around for a long time if it's obviously it's still profitable on on and long term basis so it's not as if there's any threat to the -- to brand into the finances at the moment it's really just a matter of what can investors bank on in terms of any growth over the next year or so and that's where the disappointments coming in look I think the entire spaces. Having some issues especially. What they call aspiration -- brands rates have -- the ultra high man you know Burberry has some of those brands but -- when I'm done about Louis Vuitton and things like that those. Companies performing very well -- there -- the weakness in Europe recently. But it's been mid range brands like the coach that tries to kind of popularized. You know what once were luxury brands are near luxury brands. And Kate -- my phone to a category that's been tough and department store sales have been tough in these guys rely. On that channel. All right Mike -- toll from Yahoo! finance thanks for joining us afternoons thank you. And you've been watching story stock stay with abcnews.com for your latest headlines I'm body cannot me in Washington.

This transcript has been automatically generated and may not be 100% accurate.

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