Seeking $4 billion in sales, Kate Spade emulates Ralph Lauren

WASHINGTON – Kate Spade wants to be Ralph Lauren.

Looking to quadruple retail sales to $4 billion, the handbag maker is modeling itself on Lauren's empire: a global lifestyle brand selling everything from apparel to home goods. Kate Spade & Co.'s CEO, Craig Leavitt, is focusing on categories with ready appeal — fragrances, jewelry, watches, sunglasses — and offering a range of price points to attract millennials on one end and luxury shoppers at the other.

"Ralph Lauren is our business analog," said Leavitt, 53, a former Lauren lieutenant who joined Kate Spade in 2008 and became CEO of the parent company last month. "We're very confident in what we have set out to accomplish."

It's an audacious goal for a brand that is one-eighth the size of Ralph Lauren Corp. measured by fourth-quarter revenue, generates 75 percent of its sales in the U.S. and is known mostly for quirky handbags beloved by ­gadabout urban women. Having parted ways with its namesake founder, Kate Spade also lacks a Ralph Lauren, whose curated image is as responsible for selling a modern Gatsby lifestyle as the products themselves.

Even with all the challenges, investors are still largely bullish on Kate Spade. In the past 12 months, the shares have gained 92 percent. Eric Beder, an analyst at Brean Capital in New York, has questioned the shares' valuation and in January downgraded them to "neutral." On Feb. 26, he wrote that investors may be "highly disappointed."

Kate Spade has gone from a niche to mainstream brand in the past two decades. Founded in 1993 by Mademoiselle editor Kate Spade and her husband, Andy, the handbag maker won a small following by melding vibrant color with classic lines. The brand lost luster after Neiman Marcus bought majority control in 1999. Liz Claiborne acquired the company for $124 million in 2006, and the Spades left.

At the time, Liz Claiborne owned 30 apparel labels, including Juicy Couture and Lucky Brands. Over the years, most were jettisoned or closed. Three years ago, the company sold Liz Claiborne to J.C. Penney and subsequently renamed itself Fifth & Pacific Cos. Last year, as it sought to focus on Kate Spade, Fifth & Pacific sold Juicy's intellectual property to Authentic Brands Group and agreed to sell Lucky to Leonard Green & Partners. Only the Kate Spade and the Adelington Design Group jewelry brands remain, and last month the holding company became Kate Spade & Co.

Two fragrances, "Twirl" and "Live Colorfully," debuted in 2010 and 2013, respectively. Swimwear and table linens will come this year. The brand also is licensed for shoes, sunglasses, legwear, electronics cases, bedding and stationery.

Jenny Morrissey, 31, an interior decorator and event planner, has watched the brand evolve since receiving her first Kate Spade bag as a gift from her mother 15 years ago. She deems the look trendy yet classic and said the dresses, shoes, jewelry and china are quality and priced right.

"Kate Spade has kicked it up a notch, bringing a funkier vibe," said Morrissey, of Newport Beach, Calif. "They would spice up the market as a lifestyle brand. They do everything so well. They should just go for it."

In an interview last month at his Africa-themed Park Avenue office in New York, Leavitt laid out his vision for the company. In the coming years, he plans to expand international sales to two-thirds of the total from less than 25 percent now, and sees much of the opportunity in Asia. To boost growth at home, he plans to open stores and drive more sales online, where the brand now generates 20 percent of revenue. Retail sales will reach $2 billion by the end of 2016, he said.

Sporting a flower in his lapel and patent leather sneakers, Leavitt dismissed doubters.

Customers have greeted the expansion into multiple categories enthusiastically, he said. The company has "a lot more runway" and can launch new lines with "no barriers."

Ned Davis, an analyst with William Smith & Co. in Denver, agrees, saying that the stock's valuation is justified and that he expects to see it climb to $43 within 12 months. The shares rose $1.12 Thursday to $36.62.

The stock "prices in the ongoing momentum at Kate Spade, but not the difficult retail environment or what we view as the relatively narrow scope of the Kate Spade brand," Pam Quintiliano, an analyst at SunTrust Banks Inc. in New York, wrote in a Feb. 25 note to clients. She called the valuation "lofty" and rates the shares "neutral."