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What's Michael Kors Rationale Behind Versace Acquisition?

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Michael Kors Holdings Limited (KORS - Free Report) is in the process of becoming a multi-brand destination and looking to create a niche in the luxury fashion space. Notably, the recent agreement to buy iconic Italian fashion brand, Versace, for an enterprise value of approximately $2.12 billion is another step toward the same. Last year, the branded fashion company successfully acquired the luxury-footwear brand, Jimmy Choo.

Certainly, the evolution is likely to provide stability to the stock that may get reflected in higher multiples. The addition of such luxury fashion brands enhances the company’s revenue generating capabilities and helps it gain an edge over its peers. On completion of the Versace buyout, Michael Kors will be renamed as Capri Holdings Limited and will trade under the ticker symbol “CPRI.”

Acquisitions such as that of Jimmy Choo and Versace are not only aimed at portfolio diversification but also for capitalizing on international markets and countering fierce competition from online retailers, discount outlets and fast-fashion stores. Renowned brands and increased e-commerce penetration are likely to fortify the company’s market position.

The buyout of Versace will help boost the company’s revenues to $8 billion over the long haul. The acquisition is likely to prove accretive to the company’s bottom-line, contributing in low-single digits in fiscal 2021 and high-single digits in fiscal 2022. The addition of Versace is likely to enhance the company’s European business to 24% from 23% and the Asian business to 19% from 11%.

Management intends to drive Versace’s revenues to $2 billion, increase store count to 300 from 200, and enhance e-commerce and omni-channel capabilities. It also aims to increase the contribution from men's and women's accessories and footwear from 35% to 60% of Versace’s revenues.



Undeniably, 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 #3 (Hold) stock to surge roughly 39.1% in a year, outperforming the industry’s growth of 35.7%.

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