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Jimmy Choo Posts Insane Profit Growth: What It Means for Michael Kors

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On Thursday, stiletto icon Jimmy Choo, which trades on the London Stock Exchange under the ticker “CHOO,” reported a huge year-over-year rise in pretax profit for the first half of 2017.

Before tax, Jimmy Choo said that profits came in at £18.1 million in the six months to June 30, jumping 174% from the prior-year period and surpassing the total profit the company reported for the whole of 2016. However, last year’s figures were affected by foreign exchange losses and higher financing expenses, notes Financial Times.

Taking into account interest, tax, depreciation, and amortization, adjusted earnings grew 19.5% year-over-year.

The luxury shoemaker’s revenues surged 16.5% to £201.6 million thanks to foreign-exchange movements; on a constant-currency basis, sales rose 4.5%. Jimmy Choo said its sales have continued to grow ahead of the market, despite a challenging operating environment.

Retail and wholesale revenue increased 19% and 10%, respectively, while licensing was another standout segment. Jimmy Choo’s licensing business includes its fragrance and sunglasses lines, and it grew 40% to £8.7 million.

“Our long-term growth strategy is to nurture the brand’s unique DNA, to strive for excellence in business execution and to enhance client experience, in order to deliver superior growth and profitability, as well as leveraging the significant investments we have made in the business to date. We have continued to make good progress through the first half and are well positioned to deliver over the remainder of the year,’ said Pierre Denis, CEO of Jimmy Choo.

Despite these strong numbers, Jimmy Choo still remain cautious in regards to the overall retail and economic environment. But, the company’s chairman, Peter Harf, said it is confident and excited about Jimmy Choo’s upcoming sale to Michael Kors (KORS - Free Report) .

Earlier this summer, the “affordable” luxury retailer announced that it  agreed to buy the shoemaker for £896 million, or about $1.2 billion. The deal is expected to close in the fourth quarter of this year.

It’ll be interesting to see how Michael Kors utilizes the Jimmy Choo brand. While the purchase had been a long-rumored one, their customer bases do not go hand in hand. Michael Kors has completely saturated the handbag market—the company is the top handbag maker in the U.S.—with the MK logo seemingly appearing everywhere when you walk down the street. On the other hand, Jimmy Choo is the epitome of luxe. Like its peers Manolo Blahnik and Christian Louboutin, a Jimmy Choo stiletto can easily sell for over $1,000.

Kors is likely hoping to use its own massive global infrastructure to expand Jimmy Choo’s footprint. Similar to what Coach did when the company acquired Stuart Weitzman—Coach also bought fellow handbag maker Kate Spade this year—the company will probably open Jimmy Choo retail stores and further develop the brand's online presence. And with the shoemaker’s surge in profits, it looks like Kors made a smart choice in scooping up the iconic footwear brand.

Looking ahead, Jimmy Choo hopes to implement new logistics improvements to “facilitate improves sell through if collections” during the second half of 2017.

Jimmy Choo closed the day up just 0.17%, while shares of KORS are currently trading up over 1% in late-morning trading.

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