Michael Kors Moving On to Jimmy Choo?
The multibillion dollar game of corporate dating continues for Michael Kors Holdings.
Michael Kors flirted on and off with Kate Spade & Co. But now that Coach Inc. has taken the brand off the market with a $2.4 billion deal, Michael Kors might be chatting up Jimmy Choo all the more.
Whispers in the market have Michael Kors growing more interested in the British footwear and accessories brand, which is playing the field since its majority owner, JAB Holding Co., has deemed luxury “non-core” now that it’s big in the world of coffee.
A spokeswoman for Michaels Kors declined to comment and a representative for Jimmy Choo did not immediately respond to a WWD query.
Jimmy Choo contracted Bank of America Merrill Lynch and Citi to find would-be buyers.
It would be a big deal, but not as big as Kate Spade. Jimmy Choo, which trades on the London Stock Exchange, has a market capitalization of 771 million pounds, or $994 million.
The company has a total enterprise value of 906 million pounds, or $1.2 billion, about 2.5-times sales, which last year totaled 364 million pounds, or $469 million. Three-quarters of that top line comes from shoes.
A deal with Jimmy Choo, if one were to materialize, would bring Michael Kors another brand, with a higher price point, and a greater emphasis on shoes. (Kors has just under 11 percent of its business in footwear.)
The question for Michael Kors might be whether Jimmy Choo is a better deal than its own stock — which slipped 1.2 percent to $36.74 on Friday, giving it a market capitalization of $5.8 billion and an enterprise value equivalent to 1.3-times revenues.
Michael Kors has been upfront that it might make an acquisition to expand its business and analysts have been upfront about their concern.
On a conference call with its management in February, Jefferies analyst Randal Konik asked about the “impetus or thought process around acquisitions.”
“I guess my question is why do them when the [market] cap of the company is where it was with the IPO [in 2011]. The stock is significantly cheaper than peers, et cetera. I’m just kind of curious on why even do one or contemplate one,” he said.
John Idol, chairman and chief executive officer, responded: “Our number-one capital allocation priority is to repurchase shares. Again, with our multiple being consistently below where our peer group is and us still being much more profitable than many of them, we think…that that’s really the best investment for us to make. If we can utilize the company — the management team’s expertise and certain other of our capabilities internally to create value for our shareholders, we will look at that.”
Idol also said the company had the ability to make “sizable or smaller transactions” but that there was more interest in doing a bigger deal.
“We are actively looking at a number of different things, and if it’s right for our company and our management’s ability to execute and create value for our shareholders then we will take advantage of it,” he said.
Michael Kors, which reports its fourth-quarter results later this month, has had a tough go of it recently with Idol acknowledging the company is “disappointed” with its financial results.
For the nine months ended Dec. 31, Michael Kors’ net profits slid 12.5 percent to $579.3 million as sales dipped 1.8 percent to $3.3 billion.
Like other vendors, Michael Kors has been feeling the pain of slower department stores and has sought to reduce its exposure to the channel and also to cut back on promotions, a move that tends to help margins, but pressure sales.
Instinet analyst Simeon Siegel said the move away from promotions appeared to be a “healthy decision” for the brand, but added that “rightsizing is a bumpy road” and that the pressures on the company are “showing no signs of letting up.”
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