Dive Brief:

• Kate Spade on Tuesday posted unexpectedly weak first quarter earnings, in which net sales fell 1.2% or $3 million to $271 million — missing the FactSet analyst forecast for $299 million cited by MarketWatch. Q1 direct-to-consumer same-store sales declined 2.4%, or 8.1% excluding e-commerce. Same-store sales per square foot for Kate Spade New York stores were $1,516 for the latest twelve months, compared to $1,557 for the twelve month period ended Dec. 31, 2016.

• The report also missed expectations in other measures: Q1 net income was $1.36 million, or 1 cent per share, down from $11.6 million, or 9 cents per share, in the year-ago period, while the FactSet analyst consensus cited by MarketWatch was 7 cents per share. The FactSet consensus forecast for same-store sales was for a 3.4% increase.

• The company said it will forego its conference call with analysts or providing any guidance in light of its continued exploration of strategic alternatives. The handbag and accessories maker has been rumored to be for sale, with Coach and Michael Kors both said to be interested. 

Dive Insight:

Despite declines, Kate Spade has attracted interest from at least six potential bidders in recent months, after activist firm Caerus Investors in November penned a letter to the company urging it to consider a sale. That letter noted that the brand’s margins “are well below peers with material opportunity for expansion as licensing revenues grow and the business scales over time. A potential buyer would be able to realize material cost and revenue synergies over time," the firm wrote.

More recently, Coach has emerged as the most likely buyer, with analysts estimating that the buyout sum could top $2 billion. But the company’s unexpected first quarter declines could hurt those prospects.

Still, the tie-up could be a boon to both companies. Coach has worked its way out of considerable doldrums to reclaim its place as a more upscale accessories retailer after heavy discounts and outlets sales damaged its margins as well as its brand. It’s been an uphill climb for the company, though it is seeing some traction and may now be better-positioned to take on more brands.

The company’s 2015 purchase of women's shoemaker Stuart Weitzman for $574 million has paid off handsomely, lifting results in the last quarter with a 26% increase in sales. Coach CEO Victor Luis has said the company is looking to diversify its brand further in light of that success. The retailer is also working to attract more young shoppers: Last year, the luxury retailer inked a  $10 million deal to have pop singer and actress Selena Gomez design her own product line and become the face of its brand.

A Kate Spade-Coach merger is far from final: Michael Kors is apparently still interested and may yet swoop in with its own offer in the coming days or weeks, according to press reports.