Michael Kors is said to be negotiating to buy Versace for an estimated $2.4 billion. Versace has sales of around $800 million. Kors had $4.7 billion in sales in the year ended in March.
While the Versace acquistion will help to boost top line sales, will make enough of a contribution to the bottom line?
Analysts are seriously questioning the risk versus reward of this deal.
- To build a portfolio of luxury brands to compete with other luxury groups (LVMH, Kering, Tapestry).
- Drive growth - since sales of Michael Kors have stagnated.
- Move past its position as “aspirational” or “middle luxury”, and a dependence discounting.
- Michael Kors shares fell about 8.2% $66.71 on the Versace rumors.
- Analysts believe Kors could be taking on more than it can handle - especially after the Jimmy Choo acquisition last year.
- Versace financial performance has been weak - will teaming up with Michael Kors make both stronger - or will it create a bigger but weaker entity?
- Michael Kors is still recovering from a two-year sales slump.
Not like the ‘good old days’…facing big challenges as consumer preferences change…looking to Asian markets for growth.
Recent Kors Acquisitions
Jimmy Choo for approximately $1.2 billion (last year)
Recent Luxury Brand Acquisitions
- Thom Browne sold an 85% stake to Ermengildo Zegna for $500 million (August)
- Puig acquired a major stake in Dries Van Noten (June)
- Richemont bought Net-a-Porter for around $3.3 billion (May).
- Kate Spade acquired by Tapestry for around $2.4 billion (last year)
Who Owns Versace
- 80% Versace family
- 20% Blackstone (US private equity firm)
(Blackstone is rumored to be looking for an exit due to the brand’s weak performance)
- Versace’s earnings were roughly $18 million (2.25%) on about $800 million in revenue in 2017.
- The brand has struggled in recent years to grow sales.
- It relies on Chinese consumers and other emerging markets but consumers there are changing.
Luxury Group Revenue
- LVMH - US$50 billion
- Kering - $18 billion
- Tapestry - $6 billion
- Michael Kors Holdings - $4.7 billion