Michael Kors Holdings Limited (KORS - Free Report) has been trying all means to diversify portfolio, tap international markets and counter competition from online retailers, discount outlets and fast-fashion stores. In its bid to reinforce position in the luxury fashion space, this London-based company has entered into a deal to acquire the iconic Italian fashion brand, Versace. Last year, the branded fashion company successfully acquired luxury-footwear brand, Jimmy Choo.
The deal, whose total enterprise value stands at approximately $2.12 billion, is likely to be concluded in the fourth quarter of fiscal 2019. Upon the completion of the buyout, Michael Kors will be rechristened as Capri Holdings Limited and will trade under the ticker symbol “CPRI”.
Versace, which is well known for its Medusa head logo and bold designs, has been looking for buyers after Blackstone Group, one of its stakeholders, dropped the idea of market listing due to the brand’s sluggish sales performance. Notably, the U.S. investment firm, Blackstone, owns 20% of the fashion house, while the remaining is held by Versace family. As part of the accord, Versace family will receive euro 150 million of the purchase price in shares of Capri Holdings Limited.
Management highlighted its strategic plan to raise Versace’s revenues to $2 billion and increase the store count to 300 from approximately 200. It plans on enhancing e-commerce and omni-channel capabilities. It also intends to increase the contribution from men's and women's accessories and footwear to 60% of Versace’s revenues from 35% at present.
Management went on to add that the acquisition of Versace will help augment group’s revenues to $8 billion in the long term. However, the buyout is likely to dilute earnings per share in the high-single digits in fiscal 2020 but is expected to be accretive to the company’s bottom-line in the low-single digits in the next fiscal year and again in high-single digits in fiscal 2022.
Michael Kors has been adding renowned brands to its kitty to fortify presence in the high-end luxury market. The company is expanding its product mix beyond handbags into men’s, footwear and women’s ready-to-wear.
The company’s commitment toward deploying resources to expand product offerings, build “shop-in-shops”, and upgrade its distribution infrastructure should drive sales. This along with the “Runway 2020” plan, cost containment efforts, inventory management, focus on e-commerce platform and accretive buyouts bode well.
These strategic endeavors have led the shares of this Zacks Rank #1 (Strong Buy) stock to surge roughly 42% in a year, outperforming the industry’s growth of 38%.
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