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Kate Spade confirms takeover talk, shares jump

Shares of Kate Spade jumped 10 percent in premarket trading Thursday after the luxury handbag maker confirmed that it is exploring strategic alternatives for its business. The firm made the announcement while releasing its fourth-quarter earnings, which beat Wall Street estimates on the bottom line but fell short on revenue.

The company made the announcement while releasing its fourth-quarter earnings, which beat Wall Street estimates on the bottom line but fell short on revenue.

The stock price was up 9 percent shortly after Thursday's opening bell.

In its news release, Kate Spade management said that it is"conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value." The company plans to move in a "timely" manner but has not set a definitive timetable for completion.

It also said there's no guarantee a deal would be reached, adding that it will not provide further updates until it's necessary. Speculation has been swirling over the brand's future for months, following reports that it was seeking a strategic buyer. Coach and Michael Kors have been floated as potential suitors, but neither has confirmed interest.

The company has been under pressure from activist firm Caerus Investors, which said in a letter to Kate Spade management that its shares were undervalued, and suggested it seek a larger buyer.

"The company's margins are well below peers with material opportunity for expansion as licensing revenues grow and the business scales over time," Caerus said in its letter. "A potential buyer would be able to realize material cost and revenue synergies over time."

Indeed, while Kate Spade is smaller than its peers, it has been drastically outperforming them. The brand's comparable sales increased 9 percent during the fiscal fourth quarter. That metric declined more than 6 percent at Michael Kors and increased 3 percent at Coach's North America stores over the same period.

Kate's sales rose roughly 10 percent during the fourth quarter, to $471 million. That was just shy of analysts' expectations of $472 million, according to Thomson Reuters. The company's net income was $86 million, up from $61 million a year earlier. That shook out to 41 cents a share excluding items, compared with a Thomson Reuters consensus estimate for 34 cents a share.

"Our solid fourth quarter and fiscal year performance demonstrate the strength of our differentiated business model, as we continued to gain market share and deliver strong growth despite a challenging retail environment," CEO Craig Leavitt said.

The company did not provide an outlook due to uncertainties surrounding the review of its business.

Kate Spade shares are up 22 percent over the past year.